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90 seconds at 9 am: US consumer spending weakens; major bank downgrades; UK IT problem; our banks most profitable in the world; TAF vote outcome looms

Posted in News
See video

Here's my summary of the key news in 90 seconds at 9 am, including news that Egypt has its first freely elected president. The Muslim Brotherhood candidate Mohamed Morsy has been declared the winner. He faces a big task of uniting the country and finding the benefits of the Arab Spring.

In the US, weak consumer spending and the gridlock anticipated from the 'fiscal cliff' are casting a pall over their economy.

The flight to safety is throwing up some odd results. Moody's downgraded 15 major banks late last week, but markets have reacted quite unexpectedly by bidding the stock values of almost all of them higher.

In the UK, there is an eye-watering bank IT problem by one of the majors there. For six days now, NatWest customers have been told that their balances "may not be displaying correctly", and there are big delays in actioning some transactions. Six days plus is a long time.

There is banking news here too. Australia's big four banks have been ranked the most profitable in the developed world by the Bank of International Settlements - for the second year running. Canadian banks were second.

The week starts with a slight rebound from the weakness we saw at the end of last week. The oil price is back near US$80/barrel. The S&P500 and Dow are rising. Agricultural commodity prices are in two camps - plant-based prices are trending near their yearly lows and very weak. Animal-based prices are tending to hold their prices in the mid or upper end of their annual price range, and this helps New Zealand of course.

Bernard Hickey is in Hamilton today and will be following the Fonterra TAF vote outcome and its implications for the New Zealand economy.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment in the box on the right or click on the "'Register" link at the bottom of the comments.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current Comment policy is here.

33 Comments

Australia's big four banks

Australia's big four banks have been ranked the most profitable in the developed world by the Bank of International Settlements
 
Underarm bowling, price gouging?  

New Zealand be proud , hold

New Zealand be proud , hold your mortgages up high , and feel pretty darned pleased with yourselves : The Big 4 Aussie banks could not have such impressive margins & profits without you . This was a team effort . So you deserve your moment in the BIS sun ... as indeed does Jolly Kid & his government , and Big Al over at the Reverse Bank too .....
 
..... thanks guys . We've earnt  this award . And we're mighty pleased that the property investors of your fine country played no small part in our success .

My monday morning report from

My monday morning report from California. Spent some time yesterday with a real estate agent. They normaly have between 3000 and up to 5000 houses listed they are down to 500. The houses are selling before they even get to list them. They are very short of listings. 
 The big news is who's buying, Investors, investors are grapping everything. The interest from genuine home owners is still slow but the investors are out in force. There are investment companies following Buffets advice and getting into residentual housing, backed by the banks of course. If you want a cheap house in the USA get in quick, that is unless interest rates rise and those ARMs kick in, Bernake chickens out, they start another war or some other highly unlikely event, like the sky falling.

Andrewj,  I guess these

Andrewj,  I guess these investors are the same that cleaned up on the scandalous actions undertaken by HUD a decade or more ago. . 
 
They will lobby the government to guarantee the rental income and they will be successful - the entitled always are, and inevitably they let the world know how gracious their actions were.

Iread some time ago that

Iread some time ago that Buffet doesn't buy gold but does invest in farmland,banks ,insurance companies and railways.
In some way all of them are connected.

Well I suppose if you think

Well I suppose if you think that the US housing market has already collapsed and finished more or less dropping and see a depresion coming that will,
a) wipe out the share market,
b) and bonds are massively over-subscribed so it would be silly to go there, let alone if its safe.
c) and all the US banks are corrupt and bankrupt.
d) gold is dubious unless you can hold it and you wouldnt leave it in the afore mentioned bank vaults.
e) commodities and futures will fall off a cliff,
then where else do you put your money? 
If nothing else it smacks of greed.....bye bye to them me thinks....
Bernanke has pretty much signalled interest rates wont be going up til 2015....so I cant see it before then myself....
There was talk of a lot of ARMS in 2011, 2012 and 2013 triggering, cant say ive noticed much screaming....wonder what happened to the armageddon that was foreseen....
regards
 

Whats the story with the

Whats the story with the banks increasing a few of the fixed mortgage offers? Is this an attempt to persuade a larger chunk of us to fix? 
Why cant I borrow direct from the reserve bank at 2.5%? What do retail banks do that couldnt be done by govt run outfits? Couldnt our own govt make the profits of the aussie banks on our behalf and keep it all here, nationalise the f&%kers. Take fractional reserve and its benefits back to the majority. Or could kiwis just get a clue and jump to kiwibank en masse.
Hypothetically, if we kiwis had a co-ordinated epiphany and all wanted to bank with kiwibank could we do it? Would that be beneficial to us long term?If it was state run not shareholder driven could there really be a banking system actually working for the majority of us that does not turn into Russia Inc?
Status quo doesnt seem to be working. We can not afford these profits going offshore fullstop. Obviously these suggestions will appear to be lunacy from those of you in the know. Why?
Capitalism has been very successful for a period of time. It has ordered and awarded in line with effort quite effectively I think. Its clear to most that this is no longer the case. How to address the distortion without a messy reset I wonder....
Just got back from a trip around France. The French dont do takeout coffee. You sit on your arse for hours at cafes. French 'farmers' would not have a f&^ken clue how to do a days work. Lazy subsidised ridiculousness. Unbelievable. Astounding wealth in every single village i visited. 8 tractors, brand spanking new for servicing 90 cows, fully automated sheds etc, amazing buildings that would be tourist attractions here are commonplace. Makes you realise just how far down the ranks we are. And these people benefit from the same policies that keep us in relative penury. Subsidies, money printing, devaluing their currencies to out compete us....just not fair man, not fair at all. But the people were great dammit, had to like them.
Rant ends, feedback appreciated,Thank you, thank you all.

Leadbelly - you have made

Leadbelly - you have made some interesting points in regards to banking.
 
One fairly fast growing industry in the USA is private family banking. These family banks can protect their wealth as the aren't vulnerable to bank failures, they can borrow and lend and ensure their assets are protected etc.
 
I don't know if anyone has ever started a private family bank in NZ but it is something I have thought about quite a bit. I think you need $30 to $40K just to register with the RB. You have to comply with all banking regulation etc which is extensive.   I would love to see some private family banks in NZ as I see the benefits to those in the US. Who knows what the future could bring.
 
 

Care to enlarge upon that

Care to enlarge upon that concept. Save me doing the research you see :-P

Interesting comment on French

Interesting comment on French farmers, and in effect they must be subsidised....but that only works when there is lots of "free" money handouts ie their tax payer pays up. Sooner or later its going to come down to the survival of the fittest and NZ is in a relativley healthy position I think....
 
regards

After WW1 the French made

After WW1 the French made Germany pay reparation in cash and coal and got Hitler.
After WW2 they got more cunning. They didn't ask for reparations but formed the 'Common Agriculture Policy' and made the Germans pay subsidies to support their inefficent farmers. The French can't afford the EU to break up. They need the Germans to keep the payments coming.

 Australia's big four banks

 Australia's big four banks have been ranked the most profitable in the developed world by the Bank of International Settlements - for the second year running. Canadian banks were second.....,...
Well a round of applause is in order here for the Big Aussie Four, showing the world just what can be achieved and sustained  when your dictating policy to the Reserve Banks via  the political conduit...particularly in N.Z. where another cheap loan on an overvalued property is the meat and potatoes, follow this with the inevitable trend reversal and it's lashings of gravy.
 Bankers, it's a great day to shout your faceless electronic team to lunch....savings there too..!
Never mind Kanucks...maybe next time, but it's not likely.......try being the best at targeting inflation forever, it seems to work well in N.Z., well I mean for the Banks anyway.

Our banks are the most

Our banks are the most profitible, great. We're the only monkeys stupid enough to think that exorbitant property prices and rents are a good thing, meanwhile the banks syphon a huge chunk of our GDP as a result.

Apologies to Christoff,

Apologies to Christoff, and
Apologies to Stephen Hulme for his under-arm-bowling above

I'm not a teller of jokes, but while watching the "Hot Seat" quiz show late last week the compere was going through the introductory motions with a contestant who was a middle-aged female taxi driver who also happened to be a stand-up comedienne, and the compere asked her to tell a joke. This was family time TV and I kid you not this was her joke.

You are standing there with your arms spread wide. In your left hand you hold a cricket ball, and in your right hand you hold another cricket ball. What have you got?
 
Answer: A giant cricket.

lol - wife thought it funny

lol - wife thought it funny too.

Cheers iconoclast........I

Cheers iconoclast........I recall the one that ends with Superman at your mercy....you can work it out backwards from there.

I think you may be getting

I think you may be getting confused with endurance of a camel there Count.

If there's anyone out there

If there's anyone out there who holds Billabong shares ( ASX : BBG ) , please sit down now ....... no really , you need to sit down , 'cos falling over after fainting may damage the furniture ..
 
.... OK , ... hold hands & sing kumbaya : Your company has collapsed 40 % this morning , from $A 1.88 , down to below a dollar ! ..... Yup , she's gurgling ..... the company has announced another of those ill-timed & poorly priced rights issue , a 6 for 7 issue at $A 1.02 , to raise $A 225 million , to prop up the firm .....
 
I know , Gummie's an old hand at this , I still maintain thatcha buy shares so that the company pays you dividends , rather than you keep dipping in your pocket to prop them up ... Billabong stock got near $A 18 in mid 2007 .....
 
.... as per Harvey Moron , retailers are doing it tough . At least youse guys don't own Fairfax stock . Their share price down again , to below 60 cents , as the editors of three flagship newspapers have resigned enmasse ..... ooooops !

Well, gummy, as they say, if

Well, gummy, as they say, if it looks like a dog, sounds like a dog, and walks like a dog, then it must be a member of the Green party! I don't own any shares in Billabong but I'm aware its in trouble and has been for some time now. The retail space in Oz must be pretty challenging. I'll be interested to see how our retail space in NZ holds up over the coming months, but so far if the share price of our retailers are anything to go by they seem to be holding their own. But then the shareholders are often the last to know, when things go south, aren't they! 

DavidB - paid by the mention,

DavidB - paid by the mention, are you?
 
I'd report back to your puppet-master(s) that the Green party is actually sliding into socialism - which misses what is happening by a large margin. Interesting to note the paranoia (you wouldn't denigrate then so lightweightly  if you and yours weren't paranoid about them) given that they don't represent your biggest problem.
 
Interesting to note that the more you mention them, the more they gain cred/exposure. That. of course, gets you paid more to spin, but doesn't eliminate them from the arena - presumably the original intent. Interesting wee paradox.
 
Whether you let the Steerage passengers out or not, the ship is still sinking. Waste of time putting them down.
 
You need to focus.

You're insane.

You're insane.

I'll tell you what is totally

I'll tell you what is totally insane , DB ; that a few years back Fairfax had Seek ( ASX : SEK ) offered to them on a plate for $A 26 million , should they wish to snaffle the upstart which was nibbling at their jobs advertising margins ......
 
...... of course , they said " No ! " ..... well who wouldn't , we're Fairfax , " rivers of gold " , got our multi-billion dollar mast-heads to prop us up , the internet is over-rated anyway , folk will always want a hard copy in their hot little hands  .......
 
Today , Seek has a market capitalisation of $A 2097 million , and 8 brokers follow it with in-house written reports .......
 
Fairfax has a market cap of $A 1295 million ...... little over half that of Seek , and just 3 brokerage firms actively follow the company's fortunes ...... ( FXJ dropped to 57 cents today , somewhat lower than it's 2007 highs around $A 4.80 )
 
...... that my friend , is a prime example of Schumpter's " Creative Destruction " in action ...... and not a government sticky finger nor a bail-out in sight . Just the machinations of the marketplace sorting out the winners & the losers ......... beautiful , isn't it !

LOL, funny.....coming from a

LOL, funny.....coming from a deluded, bigoted, head in sand sociopath such as yourself.
PDK is one of few who isnt afraid to look, understand, accept and act...one of the sanest ppl Ive ever come across........
regards

Thanks...Gummy.......read it

Which countries banks were

Which countries banks were going to out-perform the Aussie banks ....european, US, UK ? Come on, the reason for the Aussie bank profitability compared to their peers is obvious, they derive the bulk of their profits from about the only western economy that didnt go into recession, indeed parts of their economy boomed in the past 2-3 years. I don't think little old NZ takes alot of credit for that with just a modest contribution (25%?). 
I suspect that profitability will hold up for a while yet because unlike those earlier mentioned countries, where you can't get a loan to save yourself, the Aussie banks still seem to be supporting local businesses rather than just parking their money in Govt bonds/treasuries as the overseas banks seem restricted to.
 

The Brits are almost

The Brits are almost certainly printing another 50 billion next week.
The following today in the Telegraph.
George Buckley, economist at Deutsche Bank, said he expected £50bn more QE on July 5 while Kevin Daly, of Goldman Sachs, said the minutes “shift the likelihood sharply in favour of a July move, rather than waiting until August”.
Expect the pound to go down against the $NZ. I really don't know why our Reserve Bank thinks its clever to sit on the sidelines and have our exporters take another hit, and guarantee the current account to be in greater strife. 

Stephen - bloody good reason

Stephen - bloody good reason why not, its a historically dangerous strategy to undertake that   has inevitable consequences down the track. Just as a multitude of delusional Kiwis wanted an ANZAC currency a few years ago, and now have the euro to illustrate the stupidity, money printing will yet again show a short-term positive, long-term death, for those that practice it.
 
Fortunately, NZ isn't in the desperate situation the Poms and Europeans are (US coming up again), and Bollard and English have clearly studied financial history.

I would put it to you that

I would put it to you that heading Titanic like towards a 7% current account deficit is in fact fairly dire straits, that needs urgent attention; not the smug response of English and Bollard that all is well. Regardless of that, do we willingly take another hit to exporters, manufacturers and tourism, by these countries' printing causing a very unjustified and unsupportable NZ$ appreciation.
Mervyn King and Ben Bernanke are well versed in financial history as well; frankly somewhat more so than our lot. The comparison with the ANZAC currency debate is not really relevant. I agree, and always have, that that would be a very poor move by NZ.
What negative impact do you see for the UK and the US so far; that we would likely also suffer if wee were to manage down our exchange rate by say the IMF prescribed 15-20%? 

Stephen - I agree that

Stephen - I agree that Bernanke etc are also well versed, but they are also without choices - NZ has some at 25% debt to GDP against 100% in the US etc etc. I agree that the curernt account deficit is an issue, but one that we've suffered through for decades at much higher levels. Our exporters have survived through it, and are resiliant and will continue to be so, because they aren't structured to expect to be perpetually bailed out by interventionist Govt's that ultimately pay a huge price for the intervention.  

26 Jun 2012 Basel Bank

26 Jun 2012
Basel Bank Official Warns on Stimulus Measures

By TODD BUELL and DAVID WESSEL

The unconventional measures introduced by many central banks in response to financial turmoil could create other problems if carried out for too long, the general manager of the Bank for International Settlements said Sunday.

Central banks currently find themselves "caught in the middle," Jaime Caruana said, "forced to be the policy makers of last resort."

They are providing monetary stimulus on a "massive scale," supplying liquidity to banks unable to fund themselves in markets and easing government financing burdens by keeping interest rates low, said Mr. Caruana, speaking in Basel, Switzerland, at the annual general meeting of the BIS, a consortium of the world's central banks.

"These emergency measures could have undesirable side effects if continued for too long," he said. "A worry is that monetary policy would be pressured to do still more because not enough action has been taken in other areas."

Mr. Caruana's comments come as central bankers from Beijing to Frankfurt to Washington come under renewed pressure to step up efforts to resuscitate the slowing global economy. Some economists and politicians—and some central bankers in the U.S. and the U.K.—argue that central banks are too hesitant, condemning their economies to slower growth and higher unemployment than necessary in the wake of the financial crisis.

Other economists and some central bankers—in the U.S., Germany and elsewhere—counter that curing the ills of advanced economies lies now with government deficit-cutting and policy changes that can only be made by elected politicians.

"Fiscal adjustment, the repair of banks' balance sheets and other reforms cannot be put off in the hope of better times," Mr. Caruana said. "Relying only on central bankers but failing to act on other fronts would ultimately damage confidence and increase the risks to macroeconomic and financial stability."

Among the risks, he said, prolonged monetary stimulus might make structural or fiscal adjustments seem less urgent.

Financial-stability risks may emerge as financial firms are unable to earn high returns and thus shift to riskier investments, he said.

And "if markets come to see monetary policy decisions as constrained by the growing financing needs of government, the ability of central banks to control inflation would, at some point, be seriously compromised," Mr. Caruana said.

Countries with the weakest fiscal positions and those most dependent on borrowing from foreigners will have to move quickly. Stronger economies, particularly those "too dependent on exports," he said—without naming names but making an obvious reference to Germany and China—should "re-orient" their economies to rely more on domestic demand, he said.

Earlier Sunday, the BIS said the euro zone should develop a unified banking system to help stem its debt crisis. Banks in different countries in Europe "must become European banks" to help stop national problems spreading across borders, the Basel-based bank said in its annual report.

BIS Chairman and ECB Governing Council member Christian Noyer called for better financial regulation and more international cooperation to reduce financial imbalances. "We have yet to achieve the goal of a strong and stable financial environment for the global economy," said Mr. Noyer, who also is the head of France's central bank.

The BIS's comments come after world leaders at a summit in Mexico earlier this month discussed creating such a banking union as a means to prevent problems in one country from spilling into others. But no firm decisions have yet been made.

While Europe's borders have "become irrelevant for finance and for central banking," wrote the BIS, "authorities in one country still have only limited responsibilities for actions that a financial intermediary takes in another country."

The BIS praised suggestions made in Europe that would "unify banking rules now fragmented along national boundaries" as well as centralize responsibility in a common regulator, supervisor, deposit insurer and resolution authority.

European Central Bank President Mario Draghi broached the topic of a banking union in late May during testimony in Brussels. Though the idea has gained traction in some quarters, bank associations in Germany have been particularly resistant as they worry that this would transform into a "transfer union"—a shifting of funds from northern Europe to the southern economies, where some argue fiscal policy and supervision aren't as strong.