Here's our summary of key economic events overnight that affect New Zealand, with news commodity prices are trending down across the board now - but not money commodity prices.
But first in the US, although mortgage applications 'only' fell -1% last week from the prior week (and to be down -22% from a year earlier), the big news was the +20 bps jump in their benchmark 30 year mortgage interest rate from a week ago, now up to 7.9% plus points, the highest since 2000. Rates have now risen seven consecutive weeks at a cumulative amount of +69 bps.
While this may is keeping the existing home resale market quiet, oddly it is doesn't seem to be hurting new home sales. They rose sharply in September to an annualised rate of 759,000 and their highest since February 2022. In this corner of their housing market, FOMO seems to be active. And as we recently noted, there may be more to come because building consents and housing start data are holding up too.
This housing data was noticed by financial markets, triggering a turnaround, and a new jump in bond yields.
In Canada their central bank held its policy rate at 5.0% in an overnight decision. Their quantitative tightening program continues (selling down bonds they earlier bought to support markets). They noted that overall market conditions are now doing their rate job for them and the risk is that markets may overdo things while inflation falls away.
In China, outflows of investment capital are growing, marking their biggest net decline in September in nearly eight years. Driving it are a combination of foreign companies scaling back their operations in China, and wealthy Chinese shifting funds abroad. The net outflow reached almost US$54 bln in September, the most since January 2016.
In Germany, a widely-watched business sentiment survey continued to turn positive and is back to year-ago levels.
In Australia, inflation is rising again. Their monthly inflation indicator came in at 4.9% in July, 5.2% in August, and that rose again to 5.6% in September (5.4% was expected). This locked in the Q3-2023 CPI at 5.4% and although down from 6.0% in Q2, it is clearly on the rise again recently. Fuel, electricity, housing and insurance all are keeping the pressure on. The AUD rose on the news, in the expectation of a higher chance the RBA will raise rates there on November 7. That comes just a few hours after Westpac Australia economists set their forecast as a no change, followed by reductions from September 2024 (see page 19).
Generally however, commodity prices are falling, mostly because demand out of China is weak and not expected to revive any time soon. This includes weak prices for copper and coal, nickel and zinc. Tin and lead prices are holding, but lithium carbonate prices are now back down to pre-surge levels.
The UST 10yr yield has risen +11 bps from this time yesterday, now at 4.95%. Their key 2-10 yield curve is much less inverted, now by only -17 bps. Their 1-5 curve is less inverted as well at -57 bps. Their 3 mth-10yr curve inversion is also much less inverted, now at -45 bps. The Australian 10 year bond yield is now at 4.82% and up +10 bps from yesterday. The China 10 year bond rate is unchanged at 2.75%. However, the NZ Government 10 year bond rate is -5 bps lower at 5.59%.
Wall Street is sharply lower in its Wednesday trade with the S&P500 down -1.4%. Overnight European markets were mostly up +0.3% although Frankfurt only managed +0.1%. Yesterday, Tokyo ended its Wednesday session up +0.7%. Hong Kong rose +0.6%. Shanghai rose +0.4% yesterday. The ASX200 ended its Wednesday trade little-changed. But the NZX50 fell -0.7%.
The price of gold will start today at US$1977/oz and up +US$3/oz from yesterday at this time.
Oil prices have ticked back up +50 USc today to be now at just over US$84/bbl in the US. The international Brent price is now just over US$88/bbl.
The Kiwi dollar starts today at 58.2 USc and down -10 bps from this time yesterday. Against the Aussie we are up to 92 AUc. Against the euro we have slipped slightly to 55 euro cents. That all means our TWI-5 starts today unchanged at 68.3.
The bitcoin price starts today at US$34,586 and up another +1.7% from this time yesterday to an eighteen month high. Over the past week, this crypto price has risen more than +NZ$10,000 and is now just a tad under NZ$60,000. Volatility over the past 24 hours has been moderate at just under +/- 2.6%.
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100 Comments
Our slide into the abyss continues. Third world status pending. Proof that our leaders are simply not competent.
I just heard RNZ interviewing HC on Gaza. She is a member of the so called "Elders" WHY!? History provides the proof that her competence in doing something that actually produced positive results is really minimal. JK and JA too.
Not sure about FIAT as that is simply a trading medium. It is the matter of control and that always goes back to vested interest groups and politics. Non-FIAT will go the same way eventually.
But all religion is politics and all politics a form of religion. The real problem is that we live in a democracy and that means Government is supposed to be about the people. Abraham Lincoln said it best in his Gettysburg address "A government of the people, by the people, for the people", but as soon as the politicians get into power they tend to forget that. Our politicians are working on making themselves less accountable to the people. In part this is occurring by stealth, but they want to extend their electoral term to four years which is a blatant undermining of democracy. They pumped their own pay and conditions, the last time under HC as I recall, to levels that no other working Kiwi is entitled to from the tax payer.
True, but that still comes back to political control no matter what the trading medium was. Go back to the Roman empire and before. How was wars funded then? It hasn't changed much since then. If the trading medium was BTC how would that change the way things were done?
Prior to paper currencies, governments would run out of fighting capability if they ran low on gold. Governments would use up their gold reserves and raise additional war taxes, but there were limits in terms of how much gold they had and how much they could realistically tax for unpopular wars before the population would rebel. However, by having all of their citizens on a gold-backed paper currency, they could devalue everyone’s savings for the war without an official tax, by printing a lot of money, spending it into the economy, and then eliminating or reducing the gold peg before people knew what was happening to their money.
This allowed governments to fight much larger wars by extracting more savings from their citizens, which led their international opponents to debase their currencies with similar tactics as well if they wanted to win.
Ironically, the fact that fiat currencies have no cost to produce, is what gave them the biggest cost of all. https://www.lynalden.com/what-is-money/
Same comment as mine below/earlier.
Gold wasn't the driver - energy was. In nature, an alpha male can fight a couple of challengers, then he's tired. He does it with muscle, teeth...
We have levered energy - to the point where a physically-decrepit specimen can pull a trigger and kill dozens of challengers. It's not the gold, or the proxy - although you're absolutely correct as to how wars are 'funded' (meaning, how the victors dissipate the effort - the results sometimes being Weimar inflation). But wars are generally won by the application of more energy; more tonnage hurled faster/further. The irony is that we may see a quantum reduction in the remaining quality energy reserves, due to WW3.
Can you make that an iron clad guarantee that no politician anywhere will ever be able to have some control over BTC ever?
How about taxing it, or simply making any involvement with it illegal with huge penalties if it is broken. Remember it used to be illegal to own gold.
No attended a few meeting with him present actually. As Richard Prebble pointed out in the NZH, Labour in 1978 won the popular vote. Under MMP Muldoon may well only have had one term. The electorate voted for MMP in part to try and rein in the shenanigans that Muldoon’s prime ministership developed into. The electorate on every occasion has determined it doesn’t want to have any government have more than three years to remain unaccountable. In other words, without there being a check on proceedings. After the first Labour government ended in 1949 National have sustained five government for at least three terms. Labour though only one and twice only a one term government. That history illustrates that New Zealand’s suspicions about a government’s performance quickly precipitates, and then they are gone. But to add to your point 12 years of Muldoon would have been infinitely worse for New Zealand, then nine wouldn’t it.
Nonetheless, Muldoon & Co did carry on from the 1981 election. That was obviously six years of government, two more than the four you identify as having become problematic, Can only be hypothetical though, to speculate how MMP and/or four year terms would have altered matters.
I think if Murray had his way, we would have elections every month as its "more democratic". Us and Australia are the poster children for short term policies, surprise surprise, we are also the advanced democracies with the shortest political terms. Apparently the two "aren't connected" despite it clearly being so.
Ministers after they have their feet under their desk (6 months post election) go to their various ministries and ask what are the quick wins EVERY TIME a new government is elected (I have been in a few of these meetings before). When they get told there are a bunch of longer than 3 year projects that are really important to do, or you could just patch things over with a short 2 year project and get long term technical debt, but a quick small boost, guess what they choose? Almost every time its the short term win. Because it makes them look good. So we end up with more and more creaking systems about to fall over (Health/Education/Immigration being our poster children of such thinking). Health, at least, embarked on a multi year project to unify IT systems, which if properly supported for the next 5-10 years, would be transformational for the health sector and all NZ citizens. Likely its about to be sh%t canned by the incoming minister, just as its starting to deliver its first results. The minister will look for "quick wins" which will be shutting it down and "saving money", and screw the future when people want to, you know, have a doctor in Auckland have access to the same info as a doctor in Southland. Plus the current systems will be double the operational costs of what the new one would be and they will be spiraling ever higher as sticky plaster after sticky plaster is put on the open wound.
But the problem is wider, citizens don't want to acknowledge when governments actually do something long term that works out well too. Everyone who started, supported, worked on and built the new tax system should be absolutely lauded. It came in under budget and on time and while has had some teething problems, works for the most part amazingly. Its a huge upgrade to what existed before and costs significantly less to run. Yet we hear nothing about this because good news doesn't allow people to rage. Which seemingly is what people want, to be able to rage at things, probably due to the issues PDK talks about filtering up to a feeling of perceived waste and injustice in peoples minds.
As much as the problem is related to the elected politicians, who have at least some accountability to the public, I think the bigger issue is the army of un-elected bureaucrats sitting in Wellington, protecting their own interests. At the end of the day, all ministers do is give direction, and if those doing the grunt work don't like it, how likely is it to push through before the next government comes in?
Is adversarial how you work best? It's an inane comment. I believe three year terms work best. As I indicated in an earlier stream, if the Pollies were as good as they would have us believe then the term limit wouldn't be a factor. Luxon doesn't seem too bothered by it. He is talking about a 30 year horizon for infrastructure projects. Just hold them to account.
I know how Government works, in the departments, that doesn't mean we have to accept it. but give them another year and then how long would it be before they tell you it is not long enough? Longer terms undermines democracy as it makes them less accountable to the people.
You misidentify cause with caused.
The thing they had to change, they couldn't. Even if they had correctly identified it.
There are limits to growth on a finite planet - and we have overshot the maintainable level (you can see that as being overpopulated, but nature just sees it as overconsumption).
None of them dared admit it. But even if they had, could they halt what you describe as a 'slide into the abyss'? (I suggest that's strawman territory, for starters). In plain-speak terms, our material throughput was always going to reduce, and therefore resources would be in ever-more contention. That cannot be overturned - but it can be addressed.
No PDK I haven't.
We live in a democracy. This is supposedly about the people. But our politicians demonstrate once in power that they really just don't care other than tinkering around the edges. Yes we are bouncing around the limits of resources and the planets ability to support the population living on it, but that does not mean our elected politicians cannot have the vision and plan to lead us into a sustainable future. The Greens are the worst bunch of hypocritical neanderthals of the lot, clowns in sheep's clothing really.
You run the risk of obfuscating your arguments. No matter the species, over population is over consumption. Consumption cannot and will never be wound back until the population is wound back, and there is no plan being developed to do that other than mass slaughter through war. The self appointed "elites" of the world seem to believe they will not be amongst those who suffer, but nature often has it's own opinion on that.
I have a lot of time for your comments Murray but overpopulation and overconsumption are not the same thing.
Consumption can be wound back even if the population isn't. It takes political will. In a democracy that means convincing people to consume less. This is a hard sell when the system is built on rewarding those who promote the most consumption.
The Zuru people are held up as winners when all they do is manipulate small children and their parents into buying plastic shit that destroys our environment. Until these types of people are held up as the baddies then change will be hard.
To what degree do you think it could be successful to wind back the consumption of 9 billion and growing,people? I simply do not believe it is possible. Sure you may achieve some success with small groups, but take a look out there, groups of human beings for what ever reasons, think they are more entitled, more special than others and can then take all they want at the expense of others. Israel is doing it at the moment. The Nazis did it to them. It is happening all the time most places on the planet. The species simply doesn't function like that, but even if you succeeded, if the population continues to grow where is that limit? Any population, no matter the species, consumes resources from their environment. It is a basic fact of existence. So in the end over population still becomes over consumption in some way or form.
The western standard of living is often sought by many aspiring countries. To have a car in parts of Africa is to have wealth even if it is a 40yr old jalopi held together with rope, and this in itself opens up possibilities for work, trade, lifestyle. We have shown o the world platform starting with the UK and then USA that more resource consumption and energy usage = better life .
Those with less are often the most happy and appreciative which I've discovered from years of travel. The many indigenous Mayan tribes of Guatemala, the Kogi of northern Colombia, the Collaguas, the Cabanas and the Ccaccatapay of the central Peruvian Andes. They all have little in western standards, but they are relatively happy and have strong communities. I always ponder at the western phenomenon of never being satisfied of what one has and always wanting for more, then you see hard working high paid individuals who want only to escape to get in some fishing where possible and, if for a brief for a moment, live a minimalist life where they are happiest.
As you say it can be addressed. We seem to be locked in to over consumption to destruction. A very sad situation where we have the intelligence to identify the risk but lack the desire to reduce our consumption to a sustainable level before the planet does it for us by slowly reducing our ability to feed ourselves. I think this is the most likely scenario where mass starvation becomes inevitable. Just a matter of when. I think of my children and grandchildren and wonder what the recipe for their survival in NZ will come from. Absolute tragedy unfolding before our eyes.
I think that food production in NZ and elsewhere will be increasingly dependent on protection from inclement weather. Looking back to the pre-coal world is a scary prospect for future survival. With our technological advances hopefully we can develop an electric-driven/agrarian hybrid so we can retain some of our modern conveniences and live within our energy budget. At least being geographically blessed in NZ we have a better chance than most of surviving the future.
"food production in NZ and elsewhere will be increasingly dependent on protection from inclement weather"
This is correct but it isn't the only challenge, increased energy costs and reduced availibility, biodiversity loss, soil depletion, materials scarcity, transportation barriers will all be major factors.
Perhaps then Muldoon was being not only honest but also realistic when he said his ambition was to leave the nation in no worse condition than when he had taken over? Currently we have a “caretaker” government. Given in modern times the only government of radical change has been Lange’s controversial 4th Labour government, might not “caretaker” be accurate generally?
He probably did in the beginning did have a clear perspective, but even he lost control of his ego.
How do we achieve radical change today? We need a politician with the courage to publically ask the hard questions, and to challenge the status quo. The current bunch is only interested in working the current system which is driving us all to a crunch which is rapidly approaching.
Don't forget that from the 70's into the 80's New Zealand was reeling from the onset of severe Balance of Payments deficits. Worldwide Inflation unleashed by the '73 Israeli conflict caused hard commodities to rise "biggly", but soft commodities -not so much. NZ was a victim of its exports. Not a lot the PM could do to change that instruct the Commerce Commission to squeeze harder on Import Licenses. At the time I saw the writing on the wall, sold the company and left the country fearful that our business would be stifled. In the 70's and early 80's your Import License was one of your most important asset. Much different era.
China can crack down but money will still leave - it will come down to the cost people are prepared to pay to protect their resources -is a 10% fee acceptable? 30%? or maybe 300% as in Zimbabwe in the early days
and its even harder in China today given air travel and the level of international trading
Swiss bankers thrive on such an environment
HFL!
The USA housing starts are interesting. But although they have ticked up, still well below levels 2-3 years back.
Would be interesting to know which states the pick ups are occurring in. In states like Texas, where house prices are much more affordable, higher interest rates might have much less impact.
Australia CPI still hot because of...
- fuel (oil prices)
- electricity (retailers having a laugh - wholesale prices are actually down!)
- housing (rent spikes as inward migration goes nuts)
- insurance (what with pending climate disasters etc meaning more likelihood of claims)
The answer.... Errrm, let me see, which button should we press folks... Oh, I've only got one button! Hike those rates to protect the wealth of savers, punish people with debts and send a crap tonne of money to bank shareholders.
Why, because if we make people with mortgages poorer, cripple the construction industry and business investment generally, and shovel cash to savers and bank shareholders then global oil prices, domestic rents, and insurance costs will start to moderate? I admire your faith (and despair that so many share it).
It’s hard to put prices up when people’s wallets are empty. Maybe those essentials will still go up, but other things may have to come down.
Surely you can see this happening in NZ? Everywhere I go now shops and restaurants look empty, just 6 months ago they were humming. Do you think those shops will be raising prices by 7% this coming year? Do you think their employees will be expecting a 7% pay rise?
If anything I’m more convinced now that monetary policy works, because it’s obviously working, and the one country that thought they didn’t need to raise rates when they obviously should have is the one country with rising inflation.
People with mortgages (myself included) can fix long if they don’t want the risk of higher rates.
re ... "It’s hard to put prices up when people’s wallets are empty."
It also very hard to keep a business afloat ... especially one that relies on discretionary spending.
re ... "If anything I’m more convinced now that monetary policy works."
If reducing inflation is your sole goal it works. I should add that raising taxes does exactly the same thing.
However, if your goal is both reducing inflation and ensuring selected demographics don't become collateral damage - it doesn't. Such a system could be challenged under NZ's Bill or Rights as being unjust and unfair. (But as you've identified yourself as being in one of the demographics in NZ society that is okay then you've also outed the sort of person you are: dog eat dog.. Probably not the conclusion you intended.)
We are absolutely seeing falling consumer demand - that has been the trend for 12 months at least (when you adjust spending for prices). But, having worked in sourcing and pricing for many, many years, I can assure you that after big shifts in input costs (as we have just experienced), prices are set primarily by cost and margin - with only a cursory look at what competitors' prices are doing. Why? Because companies know that their competitors are dealing with the same input price shocks. A business that is seeing less customer demand will also accept lower sales volumes and reduced costs (e.g. less staff) before they lower margins. Many will even accept reduced market share - a partial hibernation until demand returns.
All of that said, I do accept that making people poorer will put downward pressure on price rises, but when you look at the things that are driving CPI, it seems obvious that the pressure from higher 'input costs' is outweighing the downward pressure caused by low consumer affordability.
With the heat now coming out of most imported goods, we are seeing some pass through to domestic prices; however, in my view, higher interest rates and excess demand (e.g. for rental properties, EVs, etc) are opposing these deflationary forces. For example, businesses have $200 billion of debt and they are paying 8% interest on that debt - that's $16 billion per year of cost that has to be passed onto customers. That's 8% of total consumer spending!!! Is that deflationary?!? Now do landlords - $90 billion of debt at around 5% = $4.5 billion per year on around 330,000 mortgages = $260 per week interest on average. Is that deflationary? Now, wages - what's the first thing being discussed in pay rise negotiations? Mortgage costs and rent!
Now look at countries that have inflation calming the quickest (e.g., Denmark, Switzerland, Spain, Japan) - they have experienced the deflationary effect of lower import costs but they do not have the opposing force of higher interest rates. Switzerland have hiked interest rates to... 1.75%
Some businesses are cost plus, many are not. Why does a plumber charge $150 an hour or more? Why is a beer at a pub 6x the cost of the supermarket? Does a pub make more profit selling 10 x $10 beers or 2 x $15 beers? Some businesses cant / wont lower prices, but many will have to.
Yes I see your point that interest is a cost that may have to be passed on and that may cause inflation. That is a one time cost increase (for each OCR rise). But the main risk is an inflationary spiral, where businesses feel they can raise prices because consumers have lots of money, then consumers feel they can ask for higher salaries because businesses are doing well, etc. I think we had that at the start of this year and we don't have it now.
No. It is easy to deny the logic.
You said, "The result is less money flowing around and less ability to raise prices while still having customers."
Your assumption is that all businesses are the same and that all consumers are the same. That's so far removed from the real world that it's ridiculous.
Some businesses sell into markets where demand is inelastic whereas others are the exact opposites, i.e. demand is extremely elastic where the goods purchased can either be forgone, or replaced by cheaper substitutes. Likewise, you assume that all consumers are the same and yet a consumer with a mortgage will suffer considerably whereas as consumer with term deposits actually benefits and has more money to spend or save.
Sorry Jimbo, your statement is what those of us with economics training call "pub economics". Such statements go down well amongst drunk NACTs but are actually nonsense. The real world is far more complex.
I didn't assume all businesses are the same. We are trying to solve national inflation, not the inflation in one specific business type. As long as some people spend less money and some businesses don't raise prices as much as they would have, then inflation will drop.
If people have their money in TDs' they are by definition not spending it. Jimbo makes none of those eco101 assumptions, he has looked at the evidence as presented and ascribed the results to the rates action. Whether that is a safe assumption given the multi-variant demand function is another arguement but to all intents and purposes I think he is right.
For someone with so many smart ideas you are very one-eyed on this topic. Yes there are issues with OCR rises and it's not a great tool, but it prevents a worse falling dollar and reduces credit creation, both of which would be inflationary.
The "poor mortgagors" angle is also weird. Mortgagors are relatively wealthy people who chose to take a risk borrowing - in many cases against their 2nd, 3rd or even 50th home. If you believe the state has a duty to prevent harm to citizens, we should start with those with the least wealth and agency - renters. Renters on the whole like a higher OCR - it grows their savings and makes homebuying more affordable. It's pretty obvious that the era of cheap credit caused a massive and unearned transfer of wealth from the asset-poor to the asset-rich, why would we want to go back to that, with all its disastrous societal consequences? This factor may not be in the RBNZ's remit but they will be well aware of it and at the end of the day they are humans with consciences, not remit-optimising robots.
Borrowers win from inflation, savers lose - this has been the case for 15+ years with central bank financial repression. Unless the real rate of interest rises to a positive level after tax, that situation remains. Depending on your tax rate, as per an Interest article the other day, TD savers are still losing after inflation.
Bank shareholders only win if interest margins increase and credit losses don't rise.
Right now I'm comfortable losing a bit to inflation with TDs. It's so much better than getting a nominal loss less the inflation rate and which is easy to do out there in this environment. Inflation will eventually help asset prices but I'm not sure we are there yet.
I've had a great run over the years in stocks because of ultra low interest rates which was a massive gift. I prefer to lock in some of that gift as higher interest rates hit assets in the short term and still make an acceptable nominal return with extremely low risk. I'm ok with going with what I think is the best risk/return.
Also I think you mean "you're" which is the contraction of you and are.
Also depends on the returns you are talking. If someone is getting say $30k/1year with a term deposit then what difference does it make if it is 1-2% off inflation when they can reinvest the gains after and spend some other on bolstering other parts of their portfolio where greater gains are seen or predicted to be. Simply not making up for gains with inflation on a percentage basis, while in theory sounds not worth the time, but in practicality it is perfectly reasonable to many.
Savers are by definition not taking much risk (up to 100k from Jan) so the returns are marginal as you say. The "saving" is in effect the least risky way to reduce (not eliminate) the loss on cash due to inflation. This is what a balanced investment portfolio is best at any stage of life and it saddens me to see retirees cashing up and just sitting in TDs.
How else to prepare to deflate the cost of this proposed folly?
Correction Paul Keating: AUKUS worse than just the “worst deal in all history”
Australia has just committed to spending $368 billion on second hand US Virginia Class submarines, and eight next generation British AUKUS nuclear submarines. It’s a strategic blunder, and it’s not even going to happen the way PM Albanese has suggested.
It might actually be an accidental master stroke, persistent high inflation may be a bloodbath for workers for a while but investing and business will benefit from the increased focus on return required. The opposite situation to the low inflation environment and it's zombie companies and associated (not caused) social laxity.
Not so well :D but Aussie does not have an autocrat who will take over the setting of interest rates, Aus will follow the curve but below it to survive the US's kind offer - https://www.youtube.com/watch?v=SeldwfOwuL8
What I woke up to:
- Nasdaq -2.41%
- Bitcoin +2.3%
The market is starting to treat BTC like chaos insurance.
My three portfolios (1 year return)
- Stocks (USA) - +13.44%
- ETFs (mainly USA) - 6%
- Crypto - +135%
Still heavily in cash though in case we get a WW3 scenario
Not quite. BTC fell heavily from $7k or so to $3.8k in 30 hours in the Covid Crash.
But it recovered VERY sharply. It was $5.2k on the Monday (when I bought). It only took a few weeks for a recovery back to $7k and then it was up only from that point - hitting $28k by end of year.
So BTC was the best investment in the entire pandemic starting on the first day the banks opened. (Although if you pick all crypto then obviously there are bigger winners like ETH - which ran from 96 dollars to $4,800)
UBS Gives Qatari Sheikh $9 Billion Credit Line Amid Mideast Expansion
Same deal as Credit Suisse?
5.2.1. How to create your own capital: the Credit Suisse case study
The link between bank credit creation and bank capital was most graphically illustrated by the actions of the Swiss bank Credit Suisse in 2008. This incident has produced a case study that demonstrates how banks as money creators can effectively conjure any level of capital, whether directly or indirectly, therefore rendering bank regulation based on capital adequacy irrelevant: Unwilling to accept public money to shore up its failing capital, as several other major UK and Swiss banks had done, Credit Suisse arranged in October 2008 for Gulf investors (mainly from Qatar) to purchase in total over £7 billion worth of its newly issued preference shares, thus raising the amount of its capital and thereby avoiding bankruptcy. A similar share issue transaction by Barclays Bank was “a remarkable story of one of the most important transactions of the financial crisis, which helped Barclays avoid the need for a bailout from the UK government”. The details remain “shrouded in mystery and intrigue” (Jeffrey, 2014) in the case of Barclays, but the following facts seem undisputed and disclosed in the case of Credit Suisse, as cited in the press (see e.g. Binham et al., 2013): Link - https://www.sciencedirect.com/science/article/pii/S1057521915001477#s0085
https://www.theguardian.com/business/2018/oct/26/barclays-avoids-trial-over-6bn-qatar-rescue-package
Jim Grant: The Fed Needs Some Grounding In Financial History & Common Sense
I would submit to you that a common sense approach might be helpful. For example, you can reason that if you’ve been repressing interest rates, you being the central banks collectively worldwide, but suppressing them for the better part of 10 years, and if at one point, an extreme point, some $16 trillion of securities were priced to yield less than nothing – the lowest rates in 4,000 years of recorded rate history – in those circumstances, you’d expect that the proverbial beach ball held underwater would pop up again and not just stop at the surface, but rather shoot a little bit up in the air.”
While this may is keeping the existing home resale market quiet, oddly it is doesn't seem to be hurting new home sales.
It's not so odd. Because their mortgages are fixed for 30yrs, no one wants to move and refinance at a rate 300% higher than their existing mortgage. So the supply of existing homes on the market is very limited. That provides space for new-home builders to thrive.
New home sales in the US are dominated by the large listed home builders and they are using creative financing to shift inventory. Such as interest rate buy downs. These tactics also limit the price falls as the cost of the buy down is passed through to the buyer in the price they pay for the home. I.E if you want/need a home then you probably wont be able to qualify to buy an existing home because you are exposed to the full market mortgage rate. But a new home builder can fit you in with payments you can afford.
https://wolfstreet.com/2023/09/10/mortgage-rate-buydowns-by-homebuilder…
A recession usually follows with 2 years. 'Merican data. Our mileage may vary. ;-)
https://www.nasdaq.com/articles/the-inverted-yield-curve-what-it-means-…
"Why the long gap?", you may ask.
Mainly because a) businesses need to continue to pay for investments already made before their plans for reducing investment are implemented, and b) consumers likewise but their spending is affected far faster.
I should add that "this time it is different". Actually not much different. Because many consumers built up cash buffers over covid this time around the effects are delayed. Rest assured we will see the effects. There are lots of guesses as to how long the buffers will last as consumer behavior appears to have changed (albeit this is likely to be temporary) with varying guesses about the size of the buffers and which demographics have them. These guesses range from 6 months to 2 years. It'll likely be in the middle somewhere.
"each recession occurred less than two years after the 10-2 spread first inverted'
My point was that the curve has gone through its inversion and looks like it is going to un-invert, which going by those graphs, a recession is usually followed much more closely than 2 years
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