Here's my summary of the key events over the weekend that affect New Zealand, with news that while economic growth is spreading world-wide, the Cold War may be returning.
Firstly in the US, consumers remain quite confident about their current income and prospects but are turning less comfortable about future prospects.
And that is borne out in the latest GDP data. US economic growth in the June quarter came in a little higher than the modest levels expected at +2.6%. This is a level it is at about the average for the past five years. But one less-than-stellar aspect is that while personal income growth stayed high, the Fed's favoured inflation measure, the PCE actually declined.
North of the border, Canada has surprised markets with very strong economic growth in the year to May. Their economy was +4.6% larger in real terms in the year. The local story was the sharper than expected recovery in the quarter, due to a bounceback in their oil patch after some fires. But the year-on-year data looks past that, and observers are impressed. The Bank of Canada is expected to raise rates further and wind down their stimulus.
And staying in Canada, in the West, forest files are curtailing log harvesting. That is sure to impact our markets in China and help keep prices up.
Across the Atlantic, Spain has reported GDP growth at an impressive +3.1% annual rate. What is notable is that Spain has now finally recovered all it lost during its economic crisis. It was one of the core sufferers in the GFC due to a major housing boom meltdown.
Russia said overnight that they are poised to retaliate aggressively against new American sanctions on Moscow. Those measures are a response to their bald interference in the US presidential elections. Ironically, President Trump is expected to sign them into law, mainly because he has been trapped by Congress into doing do by an overwhelming vote that is veto-proof.
China is moving to upgrade its regulation of its insurance industry. That has been a sector which has used its premium income to make wild 'investment' bets, worldwide. However, Beijing has had enough of its insurance cowboys and is now reining them in.
In Australia, the opposition Labor Party has announced a policy to tax distributions from family trusts at a 30% rate. The idea is to prevent the wealthy from splitting their income to avoid the higher rates of tax. Apparently this rort is very widespread and the party estimates that it would recover AU$17 bln in taxes over the next ten years.
In New York, the UST 10yr yield will start today a little lower at 2.29%.
The price of oil rose again over the weekend by about US$1 and is now at just under US$50 a barrel, while the Brent benchmark is now just over US$52.50.
The price of gold is up sharply, up US$20 to US$1,269/oz.
The Kiwi dollar will start a little higher at 75.1 USc. On the cross rates we marginally higher at 94.1 AU¢, and marginally lower at 63.9 euro cents. As a result the TWI-5 index will start today at 77.6.
If you want to catch up with all the 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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24 Comments
~30 years ago in Australia "The Wealthy" or anyone who had a top tier salary, bought up small 'family' farms to take advantage of the generous tax treatment they afforded. That lead to the introduction of Fringe Benefits Tax and the removal of Negative Gearing to try to get ahead of the pack. Small farms ( and investment property in general) hit the auction blocks and Franked Dividends and Family Trusts entered through the side door as an alternative. Both of those 'recent' developments are now under review, and the Aussie Government is going to look at all sorts of tax minimisation schemes, but is now going to introduce one that exempt..... the Family Farm.... as a compromise........ A never ending Circle of Life thing I guess.....
Good luck to the Aussie Labour party with a plan to tax trusts at 30% to prevent income splitting . Its not illegal to split the income from genuine investment trusts , nor is there anything '' wrong " with it
Notwithstanding the Penny and Hooper case in NZ ( which was an aggressive avoidance scheme ) , its not illegal to structure your affairs to minimise tax and a genuine investment trust set up for families or for widows and children, would not fall foul of the law .
The sanctions against Russia, a major escalation, are for interference in the US election? There hasn't been any concrete evidence of any such thing or of how that interference manifested itself so what is this really about. The Europeans are furious.
US foreign policy seems to be a hell of a mess (who's side are they on in Syria this week) with the war obsessed Neo-cons from both parties in control. It certainly doesn't inspire much confidence that common sense will prevail.
Dwight Eisenhower:
"In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist. We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together."
https://en.wikipedia.org/wiki/Eisenhower%27s_farewell_address
Across the Atlantic, Spain has reported GDP growth at an impressive +3.1% annual rate. What is notable is that Spain has now finally recovered all it lost during its economic crisis. It was one of the core sufferers in the GFC due to a major housing boom meltdown. [my emphasis]
Hmmmm ... not really.
On July 26, 2012, Draghi put himself in front of the cameras and declared to the world the euro would survive no matter what.>
"The ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough".
Was it? As human beings, we like to use the opportunity round numbers afford to take stock of things. And why not? Of big things there needs to be such accounting, and, if need be, reckoning.
On the basis of just peripheral bond spreads, at first glance the promise was a triumph. A more determined view would only give it qualified success. Peripheral spreads have collapsed when compared to the worst of 2011-12, but they have never normalized to pre-crisis conditions. There remains five years later a distinct premium (that rose again, importantly, in the global downturn of 2015-16).
A hundred and fifty basis points is not 600, to be sure, but it’s also not zero and that matters. Whatever it is that drives the differences from among these places remains in effect, if subdued. Because of this, and because of Draghi’s promise, further investigation is required on that narrow basis alone.
In the 21st century we often forget that there is a purpose to money. In many ways that’s understandable given the manner in which these kinds of things are presented for our understanding (especially in the orthodox sense). Money, as finance, has become a thing almost unto itself; a system of inputs dedicated to its own output. It is in that sense where peripheral bond spreads are often measured.
The euro isn’t supposed to be solely a currency for the standard conduct of financial purposes across Europe. Bond spreads do matter but in what they tell us about the primary conditions more necessary to fruitful social circumstances. Money is a derivative tool for economy and therefore overall social stability. Read more
Those measures are a response to their bald interference in the US presidential elections.
Hmmmm....
The rape of Russia–the Russian nation, the Russian state, the Russian people–beginning the end of the 1980’s, was a coup d’état engineered by the US Central Intelligence Agency along with rogue and not so rogue networks directed by former CIA Director, then President, George Herbert Walker Bush and continued by Bush’s successor, Bill Clinton. Western accounts of what took place inside the Russian Federation during the Yeltsin years of the 1990’s speak of “Russian mafia,” or “Russian Organized Crime.” Never do they mention or even hint that those Russians who plundered their own country were organized and paid, made rich by the West, to be more precise, by the Old Boy CIA networks loyal to former CIA Director and then US President, George Herbert Walker Bush.
What took place in the 1990’s under the Russian Presidency of Boris Yeltsin was described by one knowledgeable US insider, Mortimer Zuckerman, a member of the New York Council on Foreign Relations and owner of US News & World Report as, “the largest giveaway of a nation’s wealth in history.” The giveaway or more precisely said, theft, was done through outright theft, currency war and a fraudulent loans-for-company stock shares program that Anatoly Chubais directed. Read more
Then perhaps it was nothing to do with any politics whatsoever, and simply to do with the natural cycle of exploitation of resources that happens with civilisation.
https://ourfiniteworld.com/2017/07/02/the-next-financial-crisis-is-not-…
The Unknown Putin: Documentary about the man who reverted Russia's decline
Good 1 hr documentary.
https://www.sott.net/article/274294-The-Unknown-Putin-Documentary-about…
"The Unknown Putin" - a documentary by well-known Russian journalist Andrei Karaulov. The first part of the film is devoted to the struggle for oil, which was unfolding during the first presidential term of Vladimir Putin. There were a lot of serious, yet unknown incidents that occurred during that struggle. Andrei Karaulov formulated his idea of the documentary as follows: he wanted to understand what Putin had to experience from 2000 till 2010.
Part 2 about the story of five attempts on Putin's life
I would postulate that our entire financial system is out-of -whack and that NZ Banks are finding it hard to get domestic funding deposits at anything like the OCR .
I for example would prefer to have debt than savings right now , especially when some good quality shares on the NZX are returning yields at 7% , why would anyone put money in the bank yielding negative returns after tax and adjusting for inflation .
I am tempted to borrow money to buy more shares .
@paashaas , you are right , I am unlikely to do this out of fear , because the whole system is buggered and anything could happen
Money / Capital as a factor of production has been destroyed by QE and money printing by Central Banks and it is unsustainable , just look at what happens when you mess with any on the factors of production :-
Land in Zimbabwe ( or Russia in 1917)
Enterprise in China during the Cultural Revolution
US economic growth in the June quarter came in a little higher than the modest levels expected at +2.6%. This is a level it is at about the average for the past five years.
Indeed.
Despite those upward revisions for several years ago, the change in GDP levels didn’t alter the true picture of the overall economic situation. Slightly better in 2014 and early 2015 does not make up for the ongoing non-linear contraction, where had the Great “Recession” been a recession Real GDP in Q2 2017 would have been around $21.7 trillion rather than slightly more than $17 trillion.
That almost $5 trillion difference is everything, an enormous gap in output that explains the lack of demand for labor input. It became years ago, especially after 2011 (“dollar”) and the 2012 slowdown, self-reinforcing upon real economic conditions as well as future expectations. Businesses don’t hire because revenue (and cash flow) has remained subdued, meaning fewer Americans in proportion working (or even looking for work) therefore buying far less goods and services, confirming business expectations for little or no revenue growth.
In that situation, as noted before, liquidity preferences rule all considerations including the over-management of costs. In a normal business cycle/growth period, firms would consider first their ability to meet future growth rather than overemphasizing caution and liquidity.
Translated into GDP, that’s the roller coaster of Non-Residential Fixed Investment shown above. Under prior economic cycles, it tends to grow in steady rather than uneven fashion, reinforcing the overall uneven economy. Read more
This is crazy stuff - pushing Russia into this position - Congress have fully lost it.
"This reckless and irresponsible action by the US Congress makes completely clear that Washington has intentionally chosen conflict with Russia as the main element of US foreign policy. Perhaps now the Russian government will abandon its cherished illusion that an accommodition with Washington can be reached. As I have written on many occasions, the only way Russia can achieve accommodation with Washington is to surrender and accept American hegemony. Any further resistance of the Russian government to this obvious fact would indicate dangerous delusion on the part of the Russian leadership.
The fig leaf Congress chose for its violation of diplomatic protocols and international law is the disproven allegation of Russian interference in behalf of Trump in the US presidential election. An organization of former US intelligence officers recently announced that forensic investigation has been made of the alleged Russian computer hacking, and the conclusion is that there was no hack; there was an internal leak, and the leak was copied onto a device and Russian “fingerprints” were added. There is no forensic evidence whatsoever that shows any indication of Russian hacking."
https://straightlinelogic.com/
Does it really make a diffference if the wealthy distribute their income via trusts as opposed to companies? Constantly increasing the complexity of the taxation system only helps tax lawyers, accountant & those who can afford them while hammering the middle /anyone trying to get ahead.
That is the protection offered by trusts which are a whole different benefit. To split your income you could just have your trust own a company which pays your beneficiaries (employees / contractors) a wage at their marginal tax rate. So that the company and by extension the trust have no taxable income.
Its impossible for NO TAX to be paid . The income is either taxed in the Trust , or the Company or paid by the individual .
Some methods have a reduced tax effect , but its marginal at best as the Government has neutralized any arbitrage effect by changing the tax rates
Beneficiaries (employee) marginal tax rate is the usual choice as I understand it. Each unemployed family member or kid is a fresh opportunity to use the lowest tax thresholds.
When you say there is no arbitrage: splitting a sole earner's 96,000 into 48,000 each for mom and dad means instead of paying $22,600 tax you pay $7,420 each, saving $7,680 per year in tax.
Split it 3 ways into $32,000 each ( giving baby johnny a wage, not sure if legal - consult your accountant) and each person pays $4,100 for a saving of $10,300 per year. Mom and dad may now qualify for WFF!!!
... I heard it said , after the Orc Land Worriers rugby league team's latest capitulation , that they ought to ditch all the players who won't be there next season .... and treat their last 5 matches as pre-season 2018 warm ups & trials ... bring up some new players , fresh faces from the lower ranks .... the senior team cannot make the NRL finals 8 from here , anyway ...
And I thought to myself , " Gummster , old bean .... what absolutely sublime advice for the NZ Labour party " ...
... they really need to graciously thank Andrew Little , and show him to the door ... then embark upon constructing a fresh , innovative team of younger go-getters ... accept that the 2017 election is probably stuffed anyway .... but use it as a training ground for the new team who will slaughter the Gnats in 2020 ...
.. the real fear , in both instances , is that they plod along their current path .... slowly shuffling to their inevitable doom ....
Rather than getting mad , and screaming " we're not gonna take this anymore .... we're gonna shake it up ... let's break the mould ... let's try something new ... what the hell have we got to lose from here , anyway " ....
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