Here's our summary of key economic events overnight that affect New Zealand, with news the US Fed is covering Wall Street's risks - again.
But first in China, new data for retail sales bolstered by rising factory production are generally positive, and suggest China is in fact recovering well from its coronavirus slowdown.
Chinese industrial production rose +4.4% in May 2020 from a year ago, not too dissimilar to the +5% rise in May 2019. Retail sales were however down on that basis, down -2.8% but that was a major improvement from the April drop of -7.5%. In February the drop was -21%. A feature of the retail sales improvement was demand for major household appliances. Behind all this returning activity is a good rise in electricity production, up +4.3% year-on-year. That is quite different to the -8.2% drop they reported for February.
Some car makers - Volvo and Tesla for example - are reporting a strong rise in sales.
Even though most of this data is very positive, it isn't quite as positive as some analysts were expecting and there is a tinge of disappointment in China itself. There is economic recovery but it is proving harder than they had hoped.
It is a similar story in the US. The latest Fed factory survey, this time for the New York and Northeast region, the decline in May is far less than for April and less than was expected. Remember that this region was hit hard early, and is at the forefront of reopening and this survey is reporting some strong catchup. But a virus resurgence there is threatening another lockdown.
But it is not nearly so positive across the northern border where Canada reported declining industrial production, even if it was for April.
And German airline Lufthansa is reportedly wanting to cut 22,000 staff, or about 15% of its workforce. At the end of last year it had more than 135,000 employees.
In Washington, a new US Fed corporate bond purchase program, one that will be extremely complex, has lit a fire under their equity market.
Wall Street started the week sharply lower but as the trading session developed, it turned higher on the Fed announcement and is now up +1.2% in mid-afternoon trade. That contrasts with the ASX200 yesterday that fell a sharp -2.2%. And they were followed by falls in Shanghai (-1.0%), Hong Kong (-2.2%) and especially Tokyo (-3.5%). By comparison, the NZX50 Capital Index's -0.4% slip seems was minor.
The latest compilation of Covid-19 data is here. The global tally is now 7,966,800 which is up +130,000 in a day and a faster rising pace. Global deaths now exceed 435,000. There is renewed focus on a small outbreak again in Beijing and authorities there have instituted mass re-testing there. Half the city's districts are reporting new cases.
Just over 26% of all cases globally are in the US, which is up +20,000 since this time yesterday to 2,102,800. US deaths now exceed 116,000.
In Australia, there have been 7335 cases (+15 since yesterday), 102 deaths (unchanged) and a recovery rate of just over 93% (rising). 17 people are in hospital there (+1) with 4 in ICU (+1). There are now 382 active cases in Australia (+2).
The UST 10yr yield is unchanged from yesterday at 0.71%. But that masks a drop in-between and a strong rise back in the past hour or so. Their 2-10 curve is little-changed at +52 bps. Their 1-5 curve is also holding at +16 bps, while their 3m-10yr curve is still at +57 bps. The Aussie Govt 10yr yield is unchanged at 0.89%. The China Govt 10yr is up +2 bps at 2.80%. But the NZ Govt 10 yr yield is also little-changed at 0.80%.
The gold price is a little lower today, down -US$6 to US$1,726/oz.
Oil prices are firmer today, up by nearly +US$1. They are now just under US$37/bbl in the US. The Brent price is just under US$40/bbl.
The Kiwi dollar is slightly firmer again this morning at 64.7 USc. On the cross rates we are slightly softer at 93.7 AUc however. Against the euro we are unchanged at 57.2 euro cents. That means our TWI-5 is marginally higher at 69.4.
The bitcoin price is still in its quiet phase, with its price marooned at US$9,377 today. The bitcoin rate is charted in the exchange rate set below.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
Our currency charts are here.
159 Comments
Sleight of Hand - Main Street misses out again
After an 800 point plunge into negative territory at the open the Dow Jones rebounded as the Federal Reserve announced it would begin buying Corporate Bonds on the open market. Note that they are buying existing bonds which simply releases buying power into the hands of existing bond holders. It will not inject the funds into the hands of the corporates themselves. The expectation is the corporates will issue new bonds to the released bond holders.
WASHINGTON (AP) — The Federal Reserve said Monday that it will begin purchasing corporate bonds as part of a previously-announced plan to ensure companies can borrow through the bond market during the pandemic. The program will purchase existing bonds on the open market, as opposed to newly-issued debt. The central bank said will seek to build a “broad and diversified” portfolio that will mimic a bond-market index. The bonds will have to be from highly-rated, investment-grade companies, or firms that fit that description before the viral outbreak struck. The announcement boosted the stock market, which was already rebounding from early losses.
https://www.seattletimes.com/business/federal-reserve-launches-corporat…
Soon to be expanded to any old junk.
Remembering Peter Sellers -
"Any old iron? Any old iron?
Any, any, any old iron?
You look neat. Talk about a treat!
You look so dapper from your napper to your feet.
Dressed in style, brand-new tile,
And your father's old green tie on.
But I wouldn't give you tuppence for your old watch and chain,
Old iron, old iron."
What Jay Powell looking after his "private equity" mates? Surely, not?
"Private equity" is the new name for leveraged buy-out. Meaning, you buy a well run firm with low debt, using borrowed money from someone like Powell's previous employer. Then, you install your management in the firm, they issue junk bonds, suitably packaged as investment grade debt, if possible. The money raised is passed to you, the owner, as a capital disbursement, to repay the debt you took on to buy the firm.
So, you now own a profitable firm with high debt, at little or no cost to you. Next, you sack all employees that don't generate immediate cash flow, research and development, that sort of thing. Profitablity goes up, which you portray as due to your improved management. Cash flow goes up. The multiple the stock market will pay for the stock goes up. You start selling into the rips.
This is how John Key destroyed Solid Energy, of course. It goes wrong if the profitability of the business collapses unexpectedly. The entire US corporate sector has been forced to load up with debt to avoid being taken over in this way. The potential for another wave of destruction is enormous. Thus Jay Powell must rescue his mates, just as Ben Bernanke had to rescue the banks. There is no alternative.
Feltex was another.
https://www.stuff.co.nz/business/industries/71088037/solid-energy-broug…
The government, following a global recession, pressured an SOE for increased dividends. Shock Horror.
SE, a coal producer, had diversified, making significant investments in biofuels etc as mandated. 400 employees earning over 100k.....staffing jumped 600% between 2002-08 (all this under the Labour government)
Analysts disputed the SE valuation model, the National Government decided that it was not ready for a partial sell-down, declining to proceed despite the calls from the SE Chair. The dollar spiked, coal prices collapsed, SE failed - despite government support.
This sounds more like poor decisions from the Management and Board. Add a little John Key hating from the Poster..........
And these guys in the USof A apparently rule the international finance system. We all should be frightened.
One of the insidious risks that the Fed has taken during this downturn has been to violate Section 13(3) of the Federal Reserve Act. While the Fed has the authority to buy Treasury bonds and other securities that are guaranteed as to principal and interest by the U.S. government, 13(3) requires it to take collateral when it buys corporate debt, or otherwise lends to corporations, and that collateral has to be “sufficient to protect taxpayers from losses.”
See, if the Fed did not require sufficient collateral to prevent losses, and the Fed was to actually lose money as a result, it would have actually engaged in fiscal policy – effectively granting public funds to the corporation, or to the investor that sold the bonds. Of course, the Constitution vests sole fiscal authority in Congress, so transactions by the Fed having fiscal effect would be unconstitutional, which is why the Federal Reserve Act (as well as section 4003(c)(3)(B) of the CARES Act) prohibits this sort of transaction.
Treasury may use a portion of its $500 billion in support to eligible businesses, States, and municipalities, under 4003(b)(4)(B), for the purpose of “purchasing obligations or other interests in secondary markets.” But the Fed claims it has the authority to “leverage” CARES funds by a factor of 10-to-1 to make secondary market purchases of corporate debt, including junk bonds. Even members of Congress have asked Jay Powell to identify why the Fed believes it has that authority.
The moment the Fed purchases corporate bonds beyond the amount of CARES funds directly provided by the Treasury, without taking collateral, it violates explicit “requirements relating to loan collateralization, taxpayer protection, and borrower solvency” that the CARES Act emphasized like a children’s book – using the phrase “For the avoidance of doubt.” The moment any of the Fed’s purchases generate a loss beyond CARES funds directly provided by the Treasury, it will have extended this violation to include Article 1 Section 8 of the U.S. Constitution.
After years of overborrowing to finance stock repurchases (partly to offset dilution from stock-based compensation), many corporations were overleveraged coming into this crisis. Indeed, debt securities and loan obligations of U.S. nonfinancial business hit the 97% of corporate revenues in 2019 – the highest level in history – making the debt-servicing capacity of these companies more vulnerable to profit-margin setbacks than ever before.
Yes, bankruptcies are likely to increase, but the government can support packaged restructurings and bank purchase-and-assumption transactions without bailing out private investors, who agree to accept these risks in a free-enterprise system.
It’s important to understand why it would be so illegal and insidious for the Fed to “leverage” CARES funds to buy corporate bonds. See, when the Fed (legally) buys Treasury bonds and other obligations that are guaranteed as to principal and interest by the U.S. government, it withdraws those government obligations from the hands of investors, and replaces them with other government obligations that we call “base money” (currency and reserves). This is not fiscal policy (government spending) because total publicly held government liabilities don’t change. Monetary policy just changes the mix of government obligations held by the public.
Likewise, when the Fed uses CARES funds provided by the Treasury to buy corporate bonds from investors, it’s using Congressionally approved funds for that purpose. We can still argue that it violates taxpayer protection requirements, but at least it’s using funds approved by Congress.
In stark contrast, if the Fed “leverages” those CARES funds beyond amounts that were approved by Congress, it creates new government liabilities (base money) beyond what was actually budgeted, and hands those funds to investors in return for corporate debt that is not guaranteed as to interest and principal by the U.S. government, and is not backed by collateral “sufficient to protect taxpayers from losses.” In doing so, the Fed fashions itself as an independent fiscal authority equal to Congress. Allowing this would establish the Fed as an independent fiscal authority with the ability to arbitrarily bail out private investors using public funds.
The central principle and Constitutional requirement here is simple: Fed purchases may only involve instruments that are backed either directly by the U.S. government, or by explicit collateral sufficient to avoid loss to the public. That’s the only way to prevent the Fed from becoming a separate fiscal authority.
As for the stock market, keep in mind that when the Fed buys an asset such as a Treasury bond, and pays for it by creating base money, the base money (currency and bank reserves) created in that transaction remains in the form of base money until it is retired by the Fed. The moment a stock buyer puts those dollars “into” the stock market, they go right back “out of” the market in the hands of the seller.
So the notion that the Fed is “pumping money” into the markets reflects a misinterpretation of how monetary policy operates. What the Fed does is to take interest-bearing assets from investors and replace them with base money that bears little or no interest. Fed easing affects the stock market mainly by encouraging yield-seeking speculation by the holders of zero or low-interest base money, who pass it from one investor to the next like a hot potato. As I’ve noted before, this has historically only contributed to net stock market gains in periods where investors have been observably inclined toward speculation (as gauged by the uniformity of market internals).
My impression is that investors have become overconfident in the idea that easy money can support extreme market valuations, regardless of the surrounding economic environment. U.S. equity market capitalization exceeds $40 trillion. The U.S. Treasury has allocated $25 billion of CARES economic support funds for the Federal Reserve’s to purchase outstanding, uncollateralized corporate bonds from private investors. Even if the Fed illegally “leverages” this amount to $250 billion, and even if these funds were entirely diverted to stock purchases, the Fed could absorb less than 1% of U.S. equity market capitalization. Link
Risky portfolio allocations, in other words. Not money. Not reserves.
This is how, the only way, you can explain the last half decade in stocks when “money printing” has almost entirely been absent. By the bank reserve theory, if the correlation was real then why did equities surge during globally synchronized growth when the level of reserves was at best steady and at worst falling?Link
I think we can assume that the price paid by the FED for the on-market bonds would contain a sufficiently attractive premium over and above the market-price to encourage the market exiting bond-holders to aggitate the corporates to issue more at par - and go again
They (corporations) would be putting their shareholders in deeper long term jeopardy - as noted above,
After years of overborrowing to finance stock repurchases (partly to offset dilution from stock-based compensation), many corporations were overleveraged coming into this crisis. Indeed, debt securities and loan obligations of U.S. nonfinancial business hit the 97% of corporate revenues in 2019 – the highest level in history – making the debt-servicing capacity of these companies more vulnerable to profit-margin setbacks than ever before.
Hard to make a proposition that this is the stuff of well crafted pension plan material.
Did Calpers just call the peak in the Fed-blessed bond bubble which has seen a record $1.1 trillion in new issuance in 2020?
The $395 billion California public pension giant, best known for unwinding its market hedges at the all time highs just days before the March crash giving up on a $1 billion payday, which has failed to hit its return bogey for much of the past decade is reportedly set to take on substantial leverage via borrowings and financial instruments such as equity futures, the FT reports, noting that leverage could be as high as 20% of the value of the fund, or nearly $80bn based on current assets. The purpose of all this extra debt is to juice up returns of Calpers and help it achieve its growth target.
Calpers decision was almost certainly predicated by the Fed's explicit backstop of debt, with the central bank now purchasing both IG and Junk ETFs and soon set to buy corporate bonds outright limiting - in Calpers view - the downside risk on this leverage plan. Link
Wealth comes from thin air. They do not need “factories, newspapers, steamships”, which means, by and large, there is no need for a population that serves industrial production.
The Fed has hired Black Rock do their buying for them with money created by the Fed - Black Rock gets to clip the ticket on both sides of the trade. Nothing but a Fed sanctioned fraud / ponzi scheme.
Another acronym to save us !
SMCCF..... that'll do it...
(A reporter noted on some story in the street last night "It really does seem like End of Times stuff out here". All this Fed etc action just underscores that. Bread ( Central bank lunacy) and Circuses (Distractions for the populace on many fronts).
An interest dot co commentator announced the immediate downfall of gold and BTC prices y'day because of deflation. Not sure why y'day marked the day of deflation, but what he or she said looked like it was possibly happening as both were being heavily sold. Ended up being just another day of volatility.
If gold plunges, it will become the next Robinhood gambler buy and ride.
Sharesies are different, but!
In 1929, the story goes, Joseph P. Kennedy, patriarch of the Kennedy clan, went for a shoeshine not far from his Wall Street office. Kennedy was stunned when the shoeshine man gave stock tips to him, a leading trader. He immediately returned to his office and aggressively short-sold stocks, making a fortune in the Great Crash.
Yes go onto any of the FB investor share pages (here and the US) and its full of newbies saying 'I've just opened up my first trading account and purchased Delta (in the US) or Air NZ (in NZ) shares'. Must have read 100's of those posts the last few weeks months. And imagine that is just the tip of the iceberg.
I feel like stocks and robinhood trading are like altcoin crypto trading in 2017. Except we are still in the November / December phase.
BW. Exactally, I made the same comment on YouTube a couple of days ago. All gamblers that are eventually going to get a schooling from the big boys.
Nope..as long as the printers go brrrr the shares will keep propped up. The big boys need this or they are going to be wiped out and remember the Boomer retirement funds are all heavily reliant on rising equities.
But they shouldn't be frazz - at this point they should be invested in cash and bonds. Not equities, or if they are, they should only be a small proportion of their wealth.
If interest rates where about 7-8%, we probably wouldn't have share market, housing and debt bubbles. Boomers could comfortably retire on savings with TD's and bonds returning enough income to avoid the need to speculate on shares and property.
Our experiment with inflation targeting at 2% has to me driven interest rates so low and is causing many of the issues we're currently trying to avoid! (debt bubbles). Its insanity.
"If interest rates where about 7-8%, we probably wouldn't have share market, housing and debt bubbles"
Which would have meant debt collapse way back ... with no fake income and growth for the last 20 odd years ...
All that leverage was our income
Exactly - people living off the future.
Totally agree - you cant fight deflation however with money printing - that's my definition of madness
The big boys are exiting slowly and Robinhoood buying up. The Fed won't let the big boys get hurt but more than willing to throw the typical Joe under the bus.
Wouldnt be surprised to see gold drop a bit (or Silver go up).
I don't expect either to skyrocket in the short to medium term, as so many investors solution to a margin call lies in selling their gold or crypto. I dont see it dropping substantially either given the current climate.
The time to buy is when there is blood on the streets, they say. We're not there yet.
Do the gold / btc doomsters know they can enter short positions?
That's a above my pay grade. I'm long on shiny in my hand, double up if it goes much lower position.
And bet against the Fed?!
I'm betting against the Fed. As time goes on the clearer it becomes that they are clutching at straws trying to stay afloat, with no real plan for the long term.
Now it's offical economy is printing and supplying easy and free money and nothing to do with demand and supply.
'Stocks stage biggest turnaround in 3 months to end higher as Fed pledges to buy more corporate bonds'
Printing and supplying of free money endlessely but at what consequence - very short term we know market going up but what happens in short term and on Long Term Basis.
Ugly sh*t happens.
The Fed kicked 2008 down the road till now. Can it be kicked much further?
I think the real issues will start when the BLM become All lives matter, stop making the rich richer.
BLM donations goes to a business that invests heavy in getting Democrats elected.
If Biden gets elected its just the same siht of the last 30 years repackaged. Its a victory for the elite.
If Trump gets reelected The Fed will be on borrowed time with some form of nesara/gesara implementation down the line.
That might sound far fetched, but if you think this is all about a virus and BLM protesters you are sadly mistaken.
BLM is only the media narrative. People are over the BS. The Dem's are a pack of nit pickers and won't be able too run anything effectively. All they are focused on is get rid of Trump, if they win it'll turn into a mess of in fighting and mega taxes.
It is ALL about Trump. They simply don't have an answer other than defamation through the press, or corruption.
Democrats will keep stoking the flame in the pursuit of voting from home, while Trump will deploy the military to ensure people can vote in person, reducing the scope for fraud and election rigging.
Vote from home = Biden win
Vote in person = Trump win
Go figure.....
If I was Trump, I would throw the election and watch the Dem's fall apart. The last thing I would want is be taking all that grief for anything and everything I did, when I could just throw the Dem's a pile of crap that they will not be able to control.
Wait until people realise the Confederates and the KKK came from the Democrats.
How many Democrats opposed the abolition of slavery again?
Many ironies in there. Way back what were once the Democrats are now the Republicans and vice versa. Until Trump, and in the very different circumstances of today, the Republicans were for decentralisation of government and anti protectionism, the opposite of the Democrats. Remember for instance it was Clinton who imposed tariffs on NZ sheep meat in a futile attempt to bolster their own industry. And yes traditionally the Democrats electoral strength has been the South, and especially the former slave states. Also like to add the quip that the only difference between a Democrat and Republican administration is that during the former, the poor too are allowed to be corrupt.
Calling the southern states "slave states" is perpetuating a myth that frankly is not and never was true. Slave ownership was rife over the whole of the US, not just the south.
Yes & no. That was certainly though an accurate distinction after the Missouri compromise 1820. Wikipedia on the Mason Dixie line for example. “Between the free (Northern) states and the slave (Southern) states.”
Wiki is not always right.
Well then try dictionary.com for one, definition of the slave states as being the states that permitted slavery from 1820 - 1860. Fifteen of them alphabetically from Alabama to Virginia. Or perhaps Lincoln’s reply to Senator Douglas 1854, The debate the repeal of the 1820 Missouri compromise. Distinction and definition of the slave states repeatedly, throughout. Whatever way that you look at it the Slave States are distinctly defined, historically and existed under that common use terminology, for a not insignificant period of time.
Trump doesn't seem to want lots of people of every walk of life to vote.
Did Samantha Hayes say that?
Must be true.
Based on what Rick: your imagination? What exactly is stopping any US citizen from voting?
Long lines in poor areas where the "machines" are either broken or not enough of
It's like shouting at the wind at this point:
Kicking cans
Blowing up assets prices
Full on moral hazard (essentially bail ins to zombie companies by the Fed)
Reeks of corruption in the Fed
No price discovery
Financial system in it's death throes?
Idiots.
or they have no choice
Demand must be held up at any cost
Otherwise the whole thing falls over (sooner)
The way I look at it now though is the more they try to save the system, the more it is likely to fail.
You can't use more debt to fix debt problems. Yet that appears to be the strategy.
Unless the debt can create additional productive output, and enough output to cover interest costs of the new debt created to save the system, the debt load gets worse and the system deteriorates even faster. and while businesses are failing and people are losing jobs, in the short term, its clearly not having the benefit it needs to.
IO you include a very interesting snippet "Unless the debt can create additional productive output.." that points to, but doesn't express the issue. All the new funds being created in the current crisis are going to the rich. But for your comment to be the required outcome, that money needs to be going to the bottom two thirds (lower and middle classes) because there has to be demand. "Productive output" is pointless if no one is buying.
Debt may be OK if it is supporting growth, but really it is only a means for the banks to take money out of the economy and into the pockets of the rich. The best solution in the current situation would be a temporary UBI (I am not certain if I believe in the concept yet) to those two thirds of the population. Create demand and you can preserve the economy and eventually wean off the UBI.
Like the great depression, it becomes a confidence issue. If people and banks think the future will be better (i.e. confident), they will lend and people will buy products and services.
But the problem we have now, is that there isn't any room to lend any more, regardless of confidence! Interest rates are more or less zero, so we have a liquidity trap. Central bank monetary moves to generate confidence and demand won't work. As you say it may need to be a form of fiscal policy...but again, I think with a UBI, people might save it instead of spend it because they are pessimistic about the future and because they think rates will stay low, they think they might need to preserve their capital for the future.
Its bad in whatever direction you look at it, unless something gives. And for me that is the debt. So we may need debt defaults in some form before we can have confidence again.
FYI it shouldn't be called UBI unless it applies to literally everyone. I believe the correct term for what you have in mind is 'guaranteed minimum income'. UBI means giving the same money to everyone, regardless of other income.
All this money printing has to crash the USD sooner or later doesnt it?
Not if everything else is printing just as fast?
I find Brent Johnson's take interesting - dollar milkshake theory.
Hard to get a grip on what is going to happen. Here's a link to a theory of why the Milkshake theory will not work.
https://youtu.be/rWm1nsDEcKg
You must have new debt to save the system IO. If you wanna go down the rabbit hole consider this: new debt in the system for the year must equal interest payments due. If your financial system starts with $100.00 and there is a 10% interest rate, then $10.00 in new lending (money) must be created in the following year simply to pay the note.
Once you get this I don't think it reduces the frustration of what central banks do but everything does make sense. It is also why the system itself blows up roughly every 80 years. Exponential from a low number is easy to handle but gets impossible around the point we are at now.
Yes agree with you Mike on both points. As you say the system blows up roughly every 80 years and its been 75 years since Bretton Woods.
And back to my point that unless we can create goods and services to generate a return on the new debt to service its interest rate cost - which I believe we now can't do - and we've been struggling to do and has required rates to be dropped to zero and yet even now we can't do it - so I think the only way to move forward is debt defaults...not more debt. I guess the Fed buying bonds is their attempt to take the bad debt out of the system, but in reality we're allowing dying companies to remain in a coma, which will be a drag on our economies going forward. Avoiding short term pain is now going to cause longer term pain.
It reminds me of the investigation that Daniel Kahneman talks about in his book Thinking Fast and Slow where they consider if its best to rip a bandaid off quickly or slowly. Its mostly about the way you remember it and the intensity of pain. Looks like the Central Bans want us to suffer for a longer period of time - even though they think they're being kind by trying to save a failing system.
Remember Debt = all our incomes...
A fast rip means instant deflationary spiral & will collapse the system entirely
Ultimately all the (self organising) complexity in the economy & economies to scale to this point is then lost
There is basically no nice new starting point with 7.5 billion mouths to feed
The debt mountain then is a monumental pyramid scheme? The pyramid though is upside down and getting the wobbles.
Sounds like towards the end of a long debt cycle people use leverage to gamble on increasing capital values - which is exactly what we have seen. It requires continous new entrants to sustain itself and as soon as the music stops, it will come crashing down. It has ponzi characteristics. Fine if you got in early, great even. e.g. the likes of Yvil. But by encouraging new entrants now, well its a risky game.
That is the risk I see with our housing market. Its fine when everyone is piling in, but what happens when the music stops?
its not housing prices that matter
its commodity prices
Aren't houses being traded like commodities?
Politians by nature can not pull the plaster fast and make themselves look bad. They add another plaster and pass the uck to the next person who adds another plaster till the game of musical chairs finishes with the music playing and the chair has been replaced by an ever expanding sink hole and limited floor space to escape. That all comes together soon, when the US infection / death rate continues to spike.
Yes you look at the short term nature of those filing government and central bank positions. They just because part of the herd, part of the cycle themselves, even though they think they are 'in control'. Based on what I'm seeing, and reading, they often making it worse...because its popular as there could be benefits for some by making conditions worse! (e.g. our housing market, or Trump and Powell and the sharemarket in the US).
IO Deutsche Bank estimates are that 20% of US corporates are not even earning enough to cover their interest payments. The reset is going to happen. Not thrilled about it I don't need the world to blow up but here we are.
I think its one step backwards in the short term for the sake of two steps forwards in the long run. Look at where we find ourselves. Change needs to occur.
The world as we know will be a completely different place over the next 12-24 months.
There needs to be an insurrection against the Fed along with the board of governors which are all private bankers need to be hung out to dry
Eventually the 99%ers will stand up and act. BLM is bigger than just that and will get more wide spread.
So now the chain reaction begins and it is going to keep going until it hits every industry.
https://www.stuff.co.nz/business/121829782/childcare-firm-kindercare-pr…
Remember ABC.
Also keep an eye on all the major airport areas as you will soon see the lease signs start going up and major companies hitting the wall as costs mount.
"Hertz (USA) which filed for bankruptcy last month, has put more than 23,000 cars up for sale — of various makes, models and prices."
We will start to see it here soon could be some cheap campers also looks like Britz is only hiring older campers at cheap rate and keeping newer ones parked up maybe running at a loss for next few years and hoping for a return to normal.
Watch what happens when we reach the expiry of:
1) wage subsidies
2) mortgage payment deferrals
It could turn into a game of hot potato in a few months - the potato being the bad debt.
Who wants it? Here you have? No please, you have it?
Now companies can do what they want without worrying about fundamental or economy and can pamper themselves knowing come what may, fed wil come tol rescue them as Government / Fed has more to lose / votes / power than the company.
Anything in extreme is bad so can conclude economy is sitting on a ticking time bomb.
It must be disappointing for the US people to see the Fed bailing out investors once again. This is evidence they expect a crash probably larger than the one that just happened since there would be no point to do this now otherwise.
The US Treasury did quite well over the forced acquisition of AIG post 2008. Perhaps restructuring back to core activities and the cancellation of exorbitant executive packages and bonuses might do a lot of outfits some good.
We are talking about different things, the US treasure belongs to the government while the Fed is owned by the banking sector. However bailing out companies with public money while keeping them private makes no sense no matter how much the structure was improved.
Buying corporate bonds with little if any tangible asset backing, has given those bond holders a "get out of jail" card. It's sounds more and more like we are actually playing with monopoly money every day. The bond market would be the last place I would re invest that recovered money in. Property, property , property, with no debt thanks! Sorry I forgot the three golden rules of property , location location location, no debt comes next.
You may be right, if property can hold its value over the short term. Also all those term deposit holders must surely be looking for somewhere they can get a return, so if they see property holding up they will start piling in. Then it gathers momentum. It just may happen in these crazy times.
I don't think your assumption about term deposit holders is correct. Europe has negative rates on TD's in some banks, yet people still have TD's. It's more a of 'keep my money safe' option. Property has significant downside risk, a very high entry point (for the average wage earner) and awful liquidity.
That would mean people buying property with cash I'm assuming?
Then if property prices go even higher, what happens to FHB's?
What are the long term consequences of that movement?
The consequences will be bad things happen.
DIYman the complete illegality of the Fed's actions are impressive. They are not even pretending to follow the law.
Illegal, absolutely, the FED is buying stuff they have no intention of re selling or for that matter even paying for, other than to print off some more monopoly money, of course China is doing the same, can you imagine what would happen if the NZ Government started buying those dreadful Infratil IFTHA instruments. A lot of people lost a lot of money on that one, about 250M, and the company just laughs, I wont touch Infratil again.
ditto!
With all the buy ups and constant money printing by the Fed - sooner or later will lead to a loss of confidence which will lead to the collapse in the US dollar. Gold will shine.
If you can get your hands on any
Most bullion dealers have gold and silver back in stock after the refinerys shut down March/April the world over.
I doubt that will stay the case for very long though!
China's economic recovery is proving harder than they had hoped. Going to be even harder since they still haven't got the coronavirus beaten yet. Beijing has had another 100 new cases in a fresh outbreak, so much for the Asian safety bubble then.
BBC Coronavirus: Beijing tightens controls amid spike in local cases. https://www.bbc.com/news/world-asia-china-53054388
Where's our CCP commenter?
This outbreak will peg China's recovery back a notch or two
He’s trying to find something to rhyme with Cassandra.
Their index is constructed using "seven interest rates, six yield spreads, and five other indicators," i.e., things the Fed itself has massively manipulated.Link
I know this point has been made many times before, but isn't this *exactly* the path Japan pioneered? The one you get when corporates, banks, central banks and gov't are in too tight an embrace to let any part of the complex fail, and end up slowly sinking together instead?
That path is starting to look more and more attractive to decision makers now, when the other option is to stop subsidies and let half of the businesses crash and burn.
As a recent returnee to NZ the constant "give us foreign labor or else" articles in NZH and Stuff from farm contractors and farmers looks really offensive. I'm used to the never ending "crops rotting in the fields" stories in the US to justify endless low skill immigration but the absurdity of claiming it is impossible to find anyone capable of farming in freakin NZ is just insane.
Well, it's probably "impossible to find anyone capable of farming in freakin NZ" at the current wages and awful working conditions.
Is it time to face the reality that farming in NZ isn't as lucrative as the country has been told?
Farmers make their money only when they sell the farm, if they haven't been so stupid as to swallow the bank manager's drivel and borrow to the hilt. Falling farm values will seriously hurt a lot who did not understand their business model and just trusted the bank.
Correct. If its a loss making farm good luck selling for a premium.
Its going to be interesting to see what happens to land prices. Non dairy land cannot be intensified under the new water rules, for either dairy support, winter grazing, or conversion. Unless it already is being used as such or has a consent in place. In places like Southland the ability to convert to dairy was what raised the value of non dairy land. Likewise the cashflow from dairy grazing - young stock and or winter grazing, created a new income stream for non dairy (usually reliable enough to ride out downturns in sheep/beef).
Are we going to see a differentiation in land values between non dairy who have the ability to attract the extra income stream and the non dairy who can't and are stuck to more or less doing what they currently are. The new rules apply nationally.
Other thinking.
http://www.centuryfarms.nz/awards
it's a living wage kinda argument. Now employers have had access to cheap labour they see it as a right, also crops have been planted that require low labour costs.
I think if you cannot pay a decent wage to locals you shouldn't be doing that business.
Think that you were saying Andrew that corporates have been buying up all the farms and now we're talking about importing labor to pay wages that you can't afford to live on in NZ (e.g. to buy a house etc).
Again, it comes back to the sustainability of the approach we have with the current economic model. It doesn't look sustainable at all to me.
Overseas companies like Turners and Growers (75% German owned) should not be allowed to destroy NZ wages by be allowed access to overseas workers.
no one has the balls to do that.
If the masses see it Labour will do something. Until then, nothing..
T&G are a prick of a company, under cut local growers and force them out of the market.
You're probably right, but I for one wish Labour would do something in this space.
A facebook post last night from a midwife in the Kerikeri area. A plea for winter clothing and bedding for stranded workers from Vanuatu who are going to be here until October. They are freezing! Why the hell aren't the orchardists providing for them? Greed and exploitation.
The question needs to be asked first - why are they still here? Answer - it's politics, old chap https://www.stuff.co.nz/national/health/coronavirus/300033128/coronavir…
Are they working for Turners and Growers a 75% owned German company?
who are also slowly monopolising the apple industry in NZ
Prick of a company run by a bunch of locals that are sell outs.
It's not that they're not capable, they often just don't want to.
I'm sure if the pay and conditions were better, there would be plenty of people who want to. And isn't that how it's supposed to work? If you can't get anyone to do the work you need at the pay you are offering, then the pay needs to rise to meet the market.
You can't change the weather though. Rain, hail or shine, farming doesn't care about your comfort.
absolutely, the workers are there, they just need to meet the market. Hell even I will go to work if the price is right.
ah... but what is your price Andrew? I have worked as a tractor driver in a contracting business. No amount of money would get me back in to that now - I had my time driving up hills with tractor and gear on the back, to reach a flat area on top, where you know you have to make it up in one go, because if you don't you would need to be winched up. And no winches available for miles.
if it's just driving forklift probably $35 an hour, + damage insurance.
Isn't it amazing when you look back, what you thought were acceptable risks when you were in your 20's.
haha the damage insurance would probably be the killer cost for the employer. :-)
Not so in dairy farming al123. Many employees value conditions, roster and overall package more than absolute wages - so long as wages are fair to start with.
Yes, good point - what I should have said was that pay and conditions etc need to meet the market.
Much easier money can be earned in the city and unless you're raised in a rural environment the lack of exposure could mean that plenty of potential farmers never even consider it as a career path. Unfortunately, there's still plenty of farm owners out there that work staff into the ground (sometimes illegally) and force them to exit the industry.
Sometimes it can be because kiwis hear only bad about ag and think that that is what it is like. They don't know what they don't know. https://www.odt.co.nz/regions/queenstown/expo-captures-interest-jobless.
Contractors are seeking skilled tractor drivers to drive their GPS tracked, and in some cases, GPS driven, tractors and high tech gear attached. They pay on experience but around $25-30/hr. But the days can be long and it isn't conducive to family life. It is also seasonal. There always has been an internationally transient group of people - including kiwis - who work in contracting like some do in the ski season - chasing the seasons between hemispheres accordingly. Due to farm sizes more farmers are using contractors and the majority of their work is weather dependent, so you need crews and gear ready to go when the conditions allow. Not many kiwis are willing to relocate to places like Omarama and Southland for a seasonal job, where they are working 6 days a week while their mates and families are enjoying a summer at the beach etc.
As for farming, it's not just about capability, it's also about motivation, actually wanting to work with animals, technology, science etc and skill set. For many farmers it is also about being drug free. On Country Calendar last year, there was a programme on a forestry contractor. He said he found it difficult to get suitable staff because he ran a drug free workplace and tested for it. Again not a lot of people want to relocate to areas like Southland or want to work on 1000+ cow farms where your job can be solely tractor driving, or milking, or shifting irrigation pods etc. Farmers find that if they post that there will be random drug testing, the number of applicants drops substantially. Until you have walked in their shoes.....
"There always has been an internationally transient group of people". Casual Observer I grew up in rural NZ and there were zero people like this. Farmers developed from within the community and they did the hard work of training and keeping people on the straight and narrow.
I have some sympathy for the brutal economics on the farm these days but an argument of "its easier to throw someone in there someone else has done the hard work of training and screw the locals" doesn't work for me. Laborers are a pain in the butt and take work. The entire West has given up on their local guys and have abandoned them to methamphetamines.
Well you must have grown up in the pre-cropping era because I personally know 2 self made contractors who made their starts working in Texas, Australia and NZ on a seasonal basis.
And several young family members have also done the Australia, Texas/Nth American seasons too. A contractor not far from here employs 22 tractor drivers in the summer - a few kiwis that do the circuit, some permanent employees and the rest seasonally returning Irish drivers. It is a fairly remote location.
You've been gone too long from NZ farming Mike1. Even when I was growing up, and I'm in my sunset farming years, we travelled offshore to work in the Nth American summer contracting season.
Almost 30 to lose their jobs at Wanaka New World.
When the supermarkets lay off this many staff you know it is very bad.
https://www.odt.co.nz/regions/wanaka/almost-30-jobs-set-go-wanaka-new-w…
My son-in-law is a doctor, works in mental health, started work 3 months ago, he cannot believe how low wages are in NZ, everyday he talks about it, he cannot understand how people can survive.
My daughter is a young mum and on the local facebook mothers group are a lot of mums complaining that they cannot afford to pay the power bill. But don't worry the Gov't just gave 60 mil to the Warehouse and 55mil to newsprint and many others.
Its the major reason why we've decided to not have children. I don't understand how single wage earning households get by and we don't see it improving anytime soon...
What a sad predicament the country is in that people can't afford a normal life of a home and family.
If you are suffering the unaffordability and congestion of one of our big cities, one option many have taken is to consider the long term and move to a smaller provincial city or town and take advantage of cheaper living, no congestion, and a better lifestyle with less consumerism and genuine friends.
Often once established your old friends see the advantages you have and make the move too. Probably the mother in law too!
It is this mindset that brought our ancestors to this wonderful country, and I thank them for that.
I live in the provinces. Just so happens the Manawatu/Whanganui has experienced 24%ish house price increases in a single year. Hopes of moving rural have been dashed for the moment...
Just out of interest, have out of town property investors been buying up properties in the area and driving the property prices higher?
I hear many property investors from the big cities went to locations where property rental yields were higher (and property prices were lower), when rental yields in their hometowns were too low.
Plenty of emigration from Auckland and other expensive areas - some for retirement and some commute to Auckland via Air Chathams daily flights. Plenty of locals here have rentals but I don't doubt out of town investors have bought here as the rapid price rise has been no secret.
Interestingly having a family can be a reason why we see 30somethings entering dairy farming after a career in the towns/cities, even those from a non farming background. Especially after an economic shock like 2008/09 and now. They are usually well educated and very motivated and often do well.
Having kids and dairy farming are two of the worst ways we are damaging the planet.
Each to their own. If everyone has no kids the human race will die out, so there is no urgency to look after the planet, in that case. It will survive and adapt long after we have all gone. Unless it gets blown up by a decent sized meteor.
Loved growing up and working a couple years on the dairy farm but its a life sentence. Wouldn't catch me going back to it.
Totally get what you are saying. :-) And yet those outside the industry commenting on here are so confident that there are queues of people who will sign up to it. It's a bit like saying if sanitation collectors are made redundant they could retrain to fill the gaps in medicine we have. You first have to want to do what it is. In some ways it is easier to be a farm employee than a farm owner these days, due to regulatory changes. Professional sharemilking is making a comeback again.
Sharemilking is a great way to lose every shred of equity when the milk price crashes. If it were me, i'd go contract managing for a 140k~ salary thats guaranteed year in year out
I don't think the problem is low wages, I think it's the high cost of living and very high tax and gst rates
Yea I think its a combination of both
I agree. NZ wages are very high compared to most of the world. It's the living costs that are at ridiculous levels.
"I don't understand how single wage earning households get by"
Extremely tough to own a house on a single wage earner income who is currently renting in Auckland, and wanting to buy in Auckland without any external financial assistance (e.g the bank of mum and dad) for the deposit.
Just getting the deposit together can be a challenge.
I have a relative who is a single female aged 44, university graduate, financially responsible, no kids, and still unable to buy a house on the North Shore.
Same here, too expensive, for me it's too expensive environmentally first. Monetary cost is a distant second.
Is it our wages are low or our cost of living is high? Backpackers often comment on how high the NZ minimum wage is compared to other countries they work in. The next sentence is about how expensive food is in NZ, despite it being of high quality.
Both IMO
If your finding all the above posts beyond your understanding in their esoteric complexity, then set aside some time to watch the following from you tube: "What the 1% don't want you to know". You'll find this interview with nobel economics prizewinner Paul Krugman puts many things in perspective in terms you can understand:
https://www.youtube.com/watch?v=QzQYA9Qjsi0
(The video begins near the end so you may have to start it again from the beginning.)
Thank you for posting the link
Is this what government socialism looks like??
Central banks simply printing money, buying all real assets - publicly listed bonds, stocks and government debt = while trashing the currency a the expense of the lower to middle class?
Shame most western countries are doing it at the same time
The point folk here have been making.
https://i.stuff.co.nz/national/health/coronavirus/300035945/coronavirus…
On Monday, Prime Minister Jacinda Ardern pre-empted new cases arising.
"This is going to be an ongoing campaign. New Zealand will have cases again in the future," she said.
Monday, Should had said there were a couple of suspected cases.....
The Arms Legislation Bill includes a firearms registry, harsher penalties and a warning flag system around a fit and proper person test.
https://i.stuff.co.nz/national/christchurch-shooting/120285768/mosque-t…
https://www.rnz.co.nz/news/national/419133/firearms-reform-set-to-progr…
Senior Labour ministers are playing down any influence coalition partner New Zealand First had on changes to firearms law, soon to be ushered through Parliament.
It'll be interesting to see what the royal commission have to say about the "vetting" process.
"Stuff has been told that, among other errors, police failed to interview a family member as required, instead relying on two men who met the terrorist through an internet chatroom."
Police usually contract out the interview vetting process. Earlier this year a friend renewed their license. The person interviewing them was a semi retired civilian contracted to do the vetting process. I can't remember the last time a police officer interviewed any of the firearms holders in the family.
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