Here's my summary of the key events over the weekend that affect New Zealand, with news of value declines everywhere you look.
But first, American jobs growth rose at a solid clip in July and wages rose +2.1% pa, after a surprise stall in June, both signs of an improving economy. That opens the door wider to a Federal Reserve interest rate increase next month. Their unemployment rate is 5.8% (NZ is 5.7%) and their participation rate is 62.6% (NZ is 69.4%). But despite meeting their expectations, markets seemed unimpressed.
Even less impressive but for better reasons, Chinese exports tumbled -8.3% in July, their biggest drop in four months and far worse than expected, reinforcing expectations there that Beijing will be forced to roll out more stimulus. China's official reserves actually fell in July.
But the latest inflation data from China shows prices rising +1.6%, their fastest rise in about nine months. Going the other way however, producer prices fell more than expected.
Russia is enforcing the ban on European food imports by destroying hundreds of tonnes of foodstuffs, including cheese that has been smuggled into the country, especially in the Pacific east. Not everyone is happy, though, with more than 200,000 people signing a petition that this food should have been distributed to those who are suffering from the ban.
In New York, the UST 10yr yield benchmark slipped again on Friday and is now at 2.17%.
The US oil price fell on high petrol stocks in the US, now currently below US$44/barrel, and Brent crude is now below US$49/barrel. In fact, Brent crude is at a five month low. Commodity prices generally continue there fall with the CRB index now at a 13 year low.
And the gold price is staying down, now at US$1,093/oz. Two big recent buyers, the central banks of Russia and China, have seen the value of their holdings drop by some large amounts recently.
But if you really want to see a big local value drop, the market capitalisation of the big four Aussie banks fell by more than NZ$30 bln last week as it became clear that regulator requirements for more capital is reducing the attractiveness of the high-leverage play that bank stocks have become.
The New Zealand dollar starts the week with a somewhat surprising uptick at 66.2 US¢, at 89.3 AU¢, and at 60.4 euro cents. The TWI-5 is now at 71. This is the highest the Kiwi has been in a week and a half. But it is not really due to local factors, more a reflection of weakness in the other currencies.
If you want to catch up with all the local changes on Friday, we have an update here.
The easiest place to stay up with event risk today is by following our Economic Calendar here »
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26 Comments
How did this critical look at the Government and Fonterra re economic reality slip through the National Party minders and spin control?
http://www.stuff.co.nz/business/opinion-analysis/70958458/yip-its-about…
This Govts hands off, tight spending approach is going to be interesting over the next 18 months.
Not to worry - BE tells us that dairy is only 35%, sorry 30%, sorry 25%, sorry 20%, sorry 15% of our exports. Education - a Ponzi to get Indian students into all our petrol stations and tourism - a scheme to give Chinese tourists a look at our Ponzi housing is taking up the slack.
Calm down there Smalltown. BE is adjusting down towards the PM's forecast. Can't have some singing from another hymn sheet - voter's expectations might get misaligned.
"Dairy is five percent of the economy...you certainly wouldn't want to be pulling the panic switch simply because dairy prices are down a bit." Read more
This Govts hands off, tight spending approach is going to be interesting over the next 18 months.
That 's an urban myth when it comes down to making it right for the boys.
Public organisations have paid about $90 million to their chief executives in a year - with some receiving rises of more than 20 per cent, and one getting a 55 per cent increase.
The best-paid chief executives were from state-owned energy companies.
Mighty River Power, Solid Energy, Meridian Energy and Genesis Power all paid their CEOs more than $1 million. Big rises took their deals to more than $5.5 million combined. Read more
It's hardly a critical look it is more political rant!!
A critical look would have inquired as to what the reasons are that business has not taken steps to diversify the NZ economy.
A critical look would have inquired as to why the NZ Government has State assets in the first place and then the critical look would have made an assessment as to whether asset holdings by the State influenced in any way how private investors invested!!!
A critical look would define clear boundaries between NZ'ers and foreign investors and would have identified why "The word 'Racism' is often quoted and a critical look would investigate whether those who are accusing others of being racist when inquiring about the costs/benefits of such foreign investment are nothing more than applying slander as in a known technique used in psychological warfare to stop others talking about what is being done and where".
A critical look would investigate human behaviours.....how would most people react if the PM, Bill E and Fonterra for instance stated that everything is a damn mess and we are all screwed, if they looked agitated and stressed.....the herd would change its behaviour and would that change in behaviour have benefits???
A critical look would investigate the constitutional rights of the people and whether those rights have been breached.......it is shame when life is made up of time that so many people wish to waste it on rants that have no benefit to anyone!!
Good piece from Stuff seems right on the money to me. What the Govn is doing is known as a) dont look, if that fails b) doing nothing and pray it isnt going to happen on my watch. c) If it does, look "like a boss" in fixing this "un-expected" turn of events and throw future tax payers money at the problem in order to stay elected. Bullsh**ters can and do get away with murder. The only Q is when are us as voters going to think critically about who we vote for and not who will line our pockets the best short term.
The NBR seems to be running daily pieces about dairy farmers going bust (paywalled), thus:
''A bank has appointed receivers to a Whangarei dairy farm owing $4.5 million, as dairy insolvencies begin to mount.''
$4.5 million? A mere bagatelle - and anyway the market will sort this out by allowing some nice overseas investor to come and buy the land, everyone is happy!
I was just thinking the very same thing (but we don't want to be seen as Chicken Little's do we).
I have seen it claimed elsewhere that the Whangarei farm in question has a secured debt of $4.5 million , and assets (maybe) of land at $3 million, and Fonterra shares worth perhaps $0.5 million.
Someone will not be made whole it seems.....
It seems Totara Park Dairy Farm slipped away unannounced a couple of weeks ago as well....
Me thinks some good data on what % of farms owe what % as a mortgage and how much in $s would be interesting.
eg 5% owe 105%, 3% owe 100%, 5% owe 95% etc etc and the $s involved. Then know the amount the banks have. That then should tell how long the banks have until the former passes the later.
If $3m of land is probably more like 1/2 that even before we look at energy costs etc, boy does that get interesting.
I notice some of the comments of the financial types about bailing out of banks, maybe Black Tuesday (1929) is closer than we think.
"Despite the dangers of speculation, many believed that the stock market housing would continue to rise indefinitely. On March 25, 1929, after the Federal Reserve warned of excessive speculation, a mini crash occurred as investors started to sell stocks houses at a rapid pace, exposing the market's shaky foundation. However, the American NZ economy showed ominous signs of trouble. steel milk production declined, construction was sluggish, and consumers were building up high debts because of easy credit"
sounds so familiar.
This one seems to have slipped under the radar.
"The Overseas Investment Office is believed to be still considering a $42 million purchase of seven Far North farms by a Chinese company.
On Tuesday the Advocate revealed that Hunan Dakang Pasture Farming had signed an agreement to buy farms totalling about 3600ha, all in the Kaikohe area and owned by Merv and Cara Pinny.
Hunan Dakang does not yet own any farms in New Zealand. It is, however, 55 per cent owned by the Shanghai Pengxin Group, which has bought farms and office buildings in a series of multi-million-dollar deals"
This is right in my patch and I happen to know a little of the history of these farms.
All formerly family owned individual operations they were bought up by the Pinnys with the help of family connections to the Fay Richwhite outfit.
"The Pinnys operate seven dairy farms and three dairy support farms ranging in size from 100-600ha south of Kaikohe. Fifty staff milk 3900 cows, producing about 1.2 million kg of milk solids or 15 million litres of milk a season on a milking platform of about 1550ha of freehold land with a further 275ha of neighbouring leased land"
This is a really sizeable operation in a top producing area so sad to see it fall into foreign control.
From familly farms to this in a couple of decades.
Wasn't someone saying a few short years ago that we don't want to become "tenants in our own country"?
http://www.nzherald.co.nz/northern-advocate/news/article.cfm?c_id=15034…
3900/50 = 78 cows each ?? (half of what I was doing ie up to 200 up FTE )
1,200,000/78 = 24,000 kgMS/FTE (mine was 55-60,000 per FTE)
1,200,000/(1550+275) = 657 kgMS/ha absolutely dreadful. My grandfather did better.
3900/1825 = 2.13 cows/ hectare (under 1 cow per acre)
That is incredibly bad levels of production and efficient. Especially considering with that many staff they should have specialisation and mult-person advantages (some jobs are just so much faster with 2 or 3 people).
The franchise system I set up produced a minimum of double what they were doing, was primarily grass based, equipment poor, and orientated around sustainable ground management, and 2.25 - 2.4 cow/ha.
I'm not suprised they're going under.
Thanks Gertrude and Cowboy, don't know if the figures in the paper are entirely accurate but I do know that a lot of this land is still under developed/not suitable and that quite a number of the staff are involved with improvements and upgrades.
Their land around Tautora/ Piccadilly Road/Ngapipito Road and just south of Kaikohe is generally good quality volcanic but I have to say not producing as well as it should.
Kiwidave, what's the difference? So the Pinny's used to own it, now a Chinese outfit does, what will change for you personally and the others working/living in the area? There's all this hysteria about foreign buyers but consider this, the Pinny's gave you $0 of the profit, the Chinese owner will give you $0 of the profit, they will likely still employ the same number of local people, probably even the same contracts. There's no reason the Pinnys will/would have spent any more of the profits from the farm locally than the new Chinese owners. The Pinnys could be piling the profits into US equities for all we know. There may even be more jobs created as the Chinese may need employees to do what the Pinny family used to.
There's no difference between a rich Kiwi owning something as opposed to a rich foreigner owning something.
There are are a number of things that make me unhappy, Happy.
I am not directly concerned but we, as in NZ, can ill afford to see profits flowing to offshore owners worsening our precarious current account deficit.
Under our FTA with China they have the right to staff these farms with their own imported labour - so called "technicians"
Our local (and consumer owned) power company is extending the geothermal development at the large Ngawha field near Kaikohe. They are working with Fonterra to include a new dairy factory using the waste heat and off peak electricity. Those plans could be in jeopardy if a large chunk of local milk is diverted elsewhere.
I don't believe the Pinnys were the greatest operators but they have done considerable development and were significant employers in an area that has struggled to offer employment and growth for it's people.
I would have loved to see them returned to individual family ownership - people with an interest in the area and children raised there to enrich the community for the future. Sorry but there is a difference.
What is that graph going to achieve Steven?
I'd rather know the cost of compliance and regulation per kg of MS! At the end of the day it is those costs which have pushed up land prices and on farm costs.....
If you are going to use a graph for any benefit then use it to graph the different taxation benefits of NZ vs Foreign owned farms!!
The fact is some people will fail but they haven't really failed as the real failure would have been in not having a go in the first place..... it is where the earning power (as in tax benefits to NZ) goes that is going to be important.........and if foreign buyers purchase a forced farm sale and then say repatriate the goods produced back to their country then NZ could well miss out on the GST as well.
The Banks are going to be the one's calling the shots and I'd be more concerned with the criteria they use in calling those shots!!! And I hope the Feds are going to be monitoring this.....will banks use similar debts to production before the pull they pin on the farmer?
But if you really want to see a big local value drop, the market capitalisation of the big four Aussie banks fell by more than NZ$30 bln last week as it became clear that regulator requirements for more capital is reducing the attractiveness of the high-leverage play that bank stocks have become.
Yes. An accident waiting to happen - I took all my term deposit funding away from the Aussie Cartel in June. They are certainly not in the mood to pay up given shareholder losses prompted by perceived collective earnings collapses. Lucky for them Bill English played along.
The only thing the big 4 are good for is if you want a housing mortgage and some business current account financing.......if you have to have money invested it is better to buy their shares use covered calls and put options if you think it is going to slide....extra caution after BBY Ltd went into liquidation in Australia is also needed.
How Australia’s Big 4 Banks Can Sink the Entire Economy – They’re Not Only Too Big Fail. For Australia, They’re Too Big To Save.
http://investmentwatchblog.com/how-australias-big-4-banks-can-sink-the-…
And if that's not scary enough, look at this, just like AKL!
Australia’s “Largest Housing Bubble on Record” in 4 Charts:
http://wolfstreet.com/2015/06/08/australias-largest-housing-bubble-on-r…
For those who think Australia has a better handle on dodgy foreign property investment, think again. Below is an excerpt from an interview of Treasurer Joe Hockey. Wide scale investigations in process over there.
I wonder what JK's response would be? Something like,"New Zealand is different"
Courtesy of Macrobusiness:
JOURNALIST:
How widespread is this problem? You foreshadowed further examples, but how many properties in Australia do you believe are illegally owned?
TREASURER:
In the May Budget I announced an extra $48 million for enforcement. Previously the rules had not been enforced in relation to residential real estate. We now have 50 investigators who are kept very busy with the amount of work that they are getting and the referrals, as I mentioned. The majority of the cases are in NSW, Victoria and WA but as you can see from the announcement today, they are all over Australia. Importantly, with the data matching that we have now enabled the Australian Taxation Office to undertake, we are able to look at around 600 million transactions a year. That’s not going to be the case in total number of real estate transactions, but there can be multiple transactions in the divestment orders that I’ve issued and announced today, there are in some cases company structures, in some cases there is direct personal investment. We are also able to look at financing of those purchases and the movement of money and so on.
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