Here's my summary of the key events over the weekend that affect New Zealand with news a new fast-rising bank may be a tax evader.
But first, initial data for US growth in the third quarter of 2017 has it at +2.3% up from the same quarter a year ago (although at a +3.0% rate in the quarter and the number most widely reported). That is higher than Q2-17-on-Q2-16 rate of +2.2% pa. But it is still much lower than year-on-year growth rates in 2014 and 2015. (see pg 14)
And President Trump is likely to announce Fed governor Jerome Powell as his nominee to be the next chairman of the U.S. central bank sometime this week, according to White House leaks that are promoting a reality-show aura around the appointment. Janet Yellen's time appears to be ending. Powell was an Obama appointee but has an attribute Trump likes; he is rich. And he is against using the Taylor Rule to guide Fed policy, something conservative Republicans want. A continuation of Yellen policies is likely, however.
A post-earnings surge in Amazon shares at the end of last week pushed Jeff Bezos to the top of the world's rich list for the first time, vaulting him ahead of Bill Gates who had held the top spot as the richest person on Earth for more than four years. The closing price was US$1,101 per share, a vast increase from $80 just ten years ago. (Amazon is now larger than many small countries.)
In Canada, house sales volumes and prices are rising again after a four month period of declines. The impact of earlier regulatory moves, especially in Toronto and Vancouver, seemed to have ended. Now their housing market regulator is saying that Canada's housing markets are "highly vulnerable" and they still see future increases even if the pace of these is expected to slow
Britain has launched an investigation into hotel booking websites saying the the listing order is as much about commissions earned by such sites as the criteria users enter.
In Australia, the social and tax implications of the Bank of Mum & Dad (B-MaD in the new parlance) is under some scrutiny. Undeclared interest income is being noticed in the tax base and there are calls for interest to be 'deemed' for tax purposes when it isn't charged. In Australia, this is a bank that may be financing up to 10% of first-home buyers although hard data is scarce.
In New York, the UST 10yr yield slipped on Wall Street to 2.42%. The rise in Chinese Govt bond yields continued with their 10 yr up to 3.82% - but their 5 year is even higher at 3.85%.
The price of crude oil is at least US$1.50 higher and now just over US$54 / barrel, while the Brent benchmark is just over US$60.50. Recently US rig counts have been going down,; however, this price rise might change things.
The price of gold is down -US$5 at US$1,267 oz.
The Kiwi dollar firmed slightly on Saturday, and will open at 68.8 US¢. And on the cross rates we also firmer against the Aussie to 89.6 AU¢, and against the euro to 59.2 euro cents. That puts the TWI-5 index up to 72.1.
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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29 Comments
No link behind "some scrutiny" (Bank of Mum and Dad). Perhaps....?
http://www.afr.com/opinion/columnists/is-the-bank-of-mum-and-dad-paying…
borrowing from parents disintermediates the financial system and weakens the efficacy of monetary policy. More importantly, it loads risk onto individuals who may prove less capable of bearing it and – crucially – increases the risk of tax evasion..... the Australian Taxation Office (could) also apply deeming, at least to interest on loans from the Bank of Mum and Dad. It could suggest the ATO use the standard variable mortgage interest rate as the deeming rate.
Mum and Dad don't pay tax on the savings they foregone by loaning to the children, but charge the offspring some sort of agreed interest payment that then is tax-free to the parents. Cool.....More unintended consequences of cheap money.
borrowing from parents disintermediates the financial system and weakens the efficacy of monetary policy. More importantly, it loads risk onto individuals who may prove less capable of bearing it [my emphasis]
Does it? Cash deficient parents are more than likely buying another property for their children using the leverage of unrealised gains accrued on an existing family home as a down payment for new bank debt.
THE Australian mortgage market has “ballooned” due to banks issuing new loans against unrealised capital gains of existing investment properties, creating a $1.7 trillion “house of cards”, a new report warns.
The report, “The Big Rort”, by LF Economics founder Lindsay David, argues Australian banks’ use of “combined loan to value ratio” — less common in other countries — makes it easy for investors to accumulate “multiple properties in a relatively short period of time despite high house prices relative to income”.
“The use of unrealised capital gain (equity) of one property to secure financing to purchase another property in Australia is extreme,” the report says.
“This approach allows lenders to report the cross-collateral security of one property which is then used as collateral against the total loan size to purchase another property. This approach substitutes as a cash deposit. Read more
Isn't borrowing against a change in capital value a way of realising that gain? Risk for the bank of course, but their loan terms and conditions largely protect them. The only way to argue that capital gain on property is "unrealised" is when nothing has been done with it surely? But to borrow against a change then means that the owner is putting that change to use in some financial way, would could arguably open them up to tax liability if policy expresses such requirements?
In addition, you now have many parents paying off their kids student loans - so we have parents lending/gifting money for kids to buy on hyperinflated houses (hyperinflated due to foreign buying and mass immigration etc) and parents trying to help kids with 40k or so of student debt (who may start their ‘careers’ on 38k with a degree). What a brilliant system!
More debt - & both generations can enjoy the increased debt - with no added value on housing or careers.
Houses can never crash was the constant refrain of the so-called experts in the USA which brought on the global financial collapse. Yet here we are doing the very same and this time around there is no scope left to lower interest rates for most of the over exposed countries.
But first, initial data for US growth in the third quarter of 2017 has it at +2.3% up from the same quarter a year ago (although at a +3.0% rate in the quarter and the number most widely reported). That is higher than Q2-17-on-Q2-16 rate of +2.2% pa. But it is still much lower than year-on-year growth rates in 2014 and 2015. (see pg 14)
Indeed.
Real Final Sales to Domestic Purchasers, a measure of US demand regardless of where the goods/services originated, increased by just 1.80% (Q/Q SAAR) in Q3. That was the lowest rate of expansion since Q1 2016 and the near-recession trough. It doesn’t bode well for future growth both as a reflection of incomes and the labor market but also the slight uptick in inventory detected by GDP also in the third quarter. That’s a potential problem for domestic producers as well as those overseas (China). Read more and more
Despite the recent easing in Toronto’s resale market, we continued to detect moderate evidence of price acceleration with strong growth in home prices among all housing types. High house prices could not be explained by fundamental economic drivers such as income and population growth.
Could not be explained by fundamental economic drivers such as income and population growth. They are looking in the wrong place.
People keep saying that a house is a home and not an investment and they are right! It is however an investment in a lifestyle.
"It is however an investment in a lifestyle." So is any money spent on anything! Money spent on a home in this age is putting resources into survival, in a way that limits being vulnerable to vagaries of any market influences. To argue that one is investing in lifestyle is placing an emotive distortion on people spending resources on what used to be, and should be considered a fundamental human right - that of shelter.
The lifestyle investment in Auckland's and the immigrant's case is in the Anglophone Global City. It occurs to me that a Global City should be defined as not just a gateway to an economic region but a city that has established multi-cultural infrastructure as well.
As for shelter it is at a higher level than what you suggest murray86. There is plenty of affordable shelter in NZ. Masterton for example.
At the most basic level agreed, but and this is the middle ground between you and I, one needs shelter where one generates their income. Having a job in AK is no good if you live in Masterton because that is all you can afford. The problem is, and JA has promised to address it, the cost of shelter. Too many people have purchased in AK because of a desire to jump on a runaway train of capital value on the expectation it will continue to accelerate, or at least continue to climb. This has meant that the less resourced of us end up on the street, although their options to move are as limited as their options for gaining shelter (job in AK, albeit minimum or low wage V no job in Masterton). The problem is in a big part investors, local and foreign, who expect unlimited growth, who also socialise the risk, but privatise the profit. Investment has a social cost too and investors need to be constrained to ensure the social cost is not borne by the tax payer as is currently happening. We have already discussed what I believe is needed to fix it, and we already know we disagree, but smething must be done to seriously reduce the cost of accommodation across the whole country.
Didge, this is hardly "utter nonsense". Only this morning NZDan posted a comment writing that he had recently purchased in Masterton a house for 3x salary and now commutes to Wellington in a comfortable train.
Humans are expected to improvise and innovate. As far as I am aware it is not considered a human right to be able to live anywhere. Globalism has resulted in exclusive (by price) zones expanding to cover entire cities.
NZDan's very post supports my constant refrain that the value of property in NZ has become a complete farce. It is aptly illustrated in this example where it involves a three hour commute to and from work. That's on a league with Japan. His choice of commute is also very risky in an extremely earthquake prone region. He could be cut off from his job for long periods. So your comments are not only utter nonsence they are self serving and counter productive to the quality of life in New Zealand. You and your ilk should be deeply ashamed.
It seems to be return. https://www.metlink.org.nz/tickets-and-fares/
Just the other day I saw folk saying the council has no right to levy rates of the level that would help fund necessary infrastructure because that would mean they couldn't afford to stay in their central Auckland house once retired. Surely this is going to have to change too. Just because folk have lived somewhere a while doesn't entitle them to be able to afford to live there while not working, because globalism.
It may not be a bad idea to encourage old people to leave. I was just talking with a colleague a few minutes ago about how his brother owns several properties in India and he only rents them to European pensioners. They retire there and have a great life with servants and everything.
So the police had a statement from the Pm of the time that " Barclay did it". The boy admitted it as such at the end and the police have now dropped it. Well I'll be???
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11938491
Amazing times
And it looks like we are going to roll over about Yian Jang but MPs aren't allowed to speak to him about "important matters"
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11937380
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