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Top 10 at 10: NZ house prices to fall 10%?; Bond vigilante bellows; Dilbert

Posted in Opinion

Here are my Top 10 links from around the Internet at 10 to 11am. I welcome your additions and comments below or please send suggestion for Wednesday’s Top 10 at 10 We can hear everything when the water is running... Dilbert.com

1.  Property price fall - Kieran Trass reckons house prices could fall 5-10% in the next year after the changes to property taxation in the budget. The NZHerald's Anne Gibson reports other property spruikers are more confident... They reckon the GST increase will push up inflation and construction costs, which will push up property prices. Your view?

Arron Davis, who runs Investments and Projects, said the Budget would create a stronger economy. "When the economy is growing and there is inflation, property prices go up," Davis said. "The fact that GST will increase means that the cost of new housing and section prices has to go up which will bring along established home values with them," Davis said.

Richard Carver, director of house-builder Jennian Homes, said building would not get cheaper because rising GST would push up the price of land and buildings.

2. Finding humour in the Euro crisis - Our very own John Clarke and Bryan Dawe find a way to make the European debt crisis funny at ABC Television. Hilarious. You need to click through to view it.

3. Gold shortage - Speculators are buying gold faster than gold mines can pull it out of the ground, The Australian reports.

Exchange-traded products (ETPs) backed by bullion added 42.5 tonnes in the week to May 14, the most in 14 months, data from UBS shows. China, Australia and the 16 other largest mining nations averaged weekly output of 42.3 tonnes last year, researcher GFMS estimates.

Related Topics

Even though prices have fallen 5.8 percent to $US1177.10 from a record $US1249.40 an ounce May 14, the median prediction in a Bloomberg survey of 23 traders, analysts and investors is that it will reach $US1500 by the end of the year.

Buying accelerated as the MSCI World Index of 23 developed nations' stocks tumbled as much as 16 per cent since mid-April and the euro weakened to a four-year low against the US dollar. Holders of ETPs, including George Soros and John Paulson, accumulated a record 1921 tonnes by May 14, eclipsing all but four of the biggest central-bank holdings.

4. The hot tax issue - Australia's plan for a 40% 'super-tax' on mining has sparked a lot of criticism from miners and their backers, but it's interesting that in recent years miners have paid relatively little tax in Australia, Treasury reports in this interesting paper. HT Kevin via IM

Over the decade to 2004-05, the electricity, gas & water (EG&W), mining, construction, transport & storage, and communication services industries together accounted for only one-fifth of corporate tax collections. The most noteworthy of these industries are EG&W and mining. The EG&W industry contributed a mere 0.2 per cent of corporate tax collections in 2004-05 — with the industry’s contribution over the decade prior being relatively stable at 0.3 per cent.

The relative size, level of state ownership and low contribution to corporate tax collections all warranted a closer examination. The mining industry’s contribution to total corporate tax collections has gradually increased over time. In 2004-05 it accounted for 8 per cent of corporate tax; this being the average for the previous decade.

This result is surprising given the start of the mining boom early in this period. A possible explanation could be that the company income tax base is different from economic income. For example, rising prices may have spurred higher investment resulting in increased deductions.

5. End of the boom? - Various commentators are saying the super tax could kill off Australia's biggest mining boom in a century, including PwC in this report in The Australian. This is one to watch because New Zealand is a suburb of Australia and Australia is a province of China. The mining boom (or lack of it) really matters for us. 

A report by PricewaterhouseCoopers on the global mining industry, issued yesterday, highlights that the world's 40 largest miners expect a return to boom-time conditions, even though the industry last year suffered its first decline in revenue since 2002. But locally, Canberra's proposed tax has raised concerns about the ability of Australian miners to sustain the strong recovery in the second half of last year.

Tim Goldsmith, PwC Australian and global mining leader, said it was important how the taxation review process was managed because tax could be a major factor in determining a country's attractiveness as an investment destination. "Clearly, sovereign risk will be a much greater consideration across more jurisdictions in future," Mr Goldsmith said.

6. The strain is growing - Bloomberg reports in this useful piece on the growing strains in the Northern Hemisphere credit markets as fears grow about how Europe is going to solve its sovereign debt crisis. This eventually will hit New Zealand as borrowing costs rise globally and our banks fight even harder for Mums and Dads savings here in the form of Term Deposits.

Investors are fleeing all but the safest securities on concern European leaders won’t be able to coordinate a response to rising levels of government debt from Greece to Spain, while U.S. legislation threatens to curb credit and hurt bank profits. The rate banks say they charge each other for three-month loans in dollars has almost doubled since February.

“This is a quintessential liquidity crisis,” said William Cunningham, head of credit strategies and fixed-income research at Boston-based State Street Corp.’s investment unit, which oversees almost $2 trillion. “It’s not inconceivable to imagine a situation where the markets behave so poorly, the liquidity behaves so badly, and risk-tolerance just evaporates that -- particularly in Europe -- consumers contract, businesses stop hiring and stop investing, and economic activity halts.”

“We’re seeing risk aversion intensifying, as well as a widening of risk aversion across asset classes,” said Peter Chatwell, an interest-rate strategist at Credit Agricole Corporate and Investment Bank in London. “That raises concern over counterparty risk and is pushing rates higher in the interbank market.”

Traders in the forward market are betting the premium of the three-month dollar London interbank offered rate, or Libor, over what investors expect the overnight federal funds rate to average -- known as the Libor-OIS spread -- will climb to about 42 basis points next month and about 61 basis points by September, according to UBS AG data. The spread widened 1 basis point to 28 basis points. The spread, a gauge of banks’ reluctance to lend, surged to a record 364 basis points on Oct. 10, 2008 as Lehman’s collapse froze credit markets. Overnight index swaps, or OIS, shows where traders expect the Federal Reserve’s overnight effective rate will average for the term of the swap.

7. Spanish flu - The IMF warned overnight that Spain's economy needed far-reaching reforms to ensure its recovery, BBC reported. This is not going away in a hurry.

It said the country faced "severe" challenges, including the need to urgently reform a "dysfunctional" labour market, and its banking sector. The IMF's comments came after Spanish authorities had to rescue regional lender Cajasur at the weekend. Last week, Spain's government passed austerity measures to cut its deficit.

8. The fear is back - This chart from The Economist really tells the story of the return of fear to global markets well.

THE clearest measure of recent investor uncertainty is the VIX or volatility index, traded on the Chicago Board Options Exchange. The index shows the price investors are willing to pay to insure themselves against substantial market moves. Having declined pretty steadily since the middle of 2009, the VIX has more than doubled in May and hit its highest level for over a year last week as it became clear that the euro-zone's rescue package on May 10th had not steadied government-bond markets as much as was hoped.

9. The biggest bond vigilante - PIMCO is the world's biggest bond fund so it naturally fits the role as the biggest bond vigilante, telling governments how to get their houses in order and warning, generally, of armageddon. PIMCO CEO Mohamed El Irian is well worth reading. He made a few comments in the Weekend WSJ.

It is absolutely critical to understand how we end up in the midst of these unsettling weekends. It's a failure of both crisis prevention and crisis management. It happens because structural problems like excessive budget deficits are allowed to fester. Policy makers quickly fall behind in terms of their understanding and ability to respond. And the crisis morphs into a highly disruptive, multidimensional affair. This is the case in Europe today.

What started as a Greek debt problem, mistakenly viewed by too many as containable, has gone regional and now global. The already difficult debt challenge has now assumed complex economic and technical dimensions. The immediate consequence of Greek contagion is heightened market volatility, violent, across-the-board sell-offs in equities and other risky assets, a drying up of market liquidity, and cascading blockages in the plumbing of the global financial system. All of this will have a negative impact on the real economy through tighter credit, lower consumption, postponed investment, and higher unemployment.

The bottom line is simple yet consequential: The disruption in financial markets is not a garden-variety market fluctuation. Instead, it's an overdue recognition that the global economy faces an uncertain future that involves slower growth and greater government regulation. Structural problems require structural solutions. The question is whether those at the weekend discussions will acknowledge this, or remain hostage to hope for an immaculate recovery.

10. Totally irrelevant video - The onion has discovered a new talk show run by a former gold prospector. Glenn Beck watchers may find this familiar...

Semi-Literate Former Gold Prospector Given Own Cable News Show

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?

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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.

29 Comments

Oh yes, its all about fear of

Oh yes, its all about fear of risk now when its "their" bailout money. Where was the risk aversion when they were gambling with everyone elses money??

Just love the

Just love the ending..."immaculate recovery"...
Somebody please convince me interest rates are not set to rise..that inflation is not set to go ballistic..that spin will solve all the problems and best of all that an aussie named Arron Davis knows what the hell he is talking about!

Too right Prospero The

Too right Prospero

The Financial Industry has been captured by a business ideology that is now a liability. The Chicago school style of things may have been apt for a period in the 80's (trimming the fat from 70's corporate idiocy)but it has become a liability for society at large. We have managers who are clearly not masters of the universe getting huge money for doing stupid things with other people's money, and no method of accountability. PIMCO blame greece who blame goldman sachs who blame barney frank who blames Moody's who blame Gordon Brown and all the while they get fat while the poor get so desperate they burgle your house and the middle class (the true engine of an economy) get squeezed more and more until their family falls apart because they are never home. And all the while the vast majority of politicos and financial media completely lack the balls to call anyone out.

We are all in a hole, but instead of changing the game (be it re finance or pollution or whatever)we are diggin further down hoping to find a way out...he's right you know, we are stuffed

Do not read this if you want

Do not read this if you want to sleep at night!
http://www.marketoracle.co.uk/Article19683.html#comment90914
and certainly not if your name is Bill English.

Simple mathematics Wally ..

Simple mathematics Wally .. its just a matter of time. That's why I have a large stash burried in the back yard.

I read it Wally an ah think

I read it Wally an ah think I'll sleep OK....Don't know bout Billy Bob.

Hmmmmmmm Ah dunnno you

Hmmmmmmm Ah dunnno you know..got some dont want too much still a lot o fast liquid out there...but good read.

And now for a little advice

And now for a little advice for the peasant who planned on saving a few pennies a day...don't! Blow what you have on cans of beans and sacks of rice.
http://www.marketwatch.com/story/rescue-your-retirement-from-inflations-...

Here it comes..mean old mista inflayshin.

Appreciate the advice Wally.

Appreciate the advice Wally. I'll tell my husband he might as well splash on a new flat-screen TV (I don't think he'll be that keen on the cans of beans sorry). So no debt and no savings, is that the best thing to do right now (seriously)?

A suggestion Elley that for

A suggestion Elley that for most people the best way to avoid the harm inflation will do their modest savings, is to spend it before it is worth less and to spend on essentials which beans and rice amount to. For others it was to buy fph shares or the like before the kiwi crashed, or to buy gold coins, or pay down debt. Little point in saving if inflation is said to be 5.9% over the oct to sept year thanks to gst and other rises such as the ETS tax. Anything saved might earn 4% at best..less the 5.9 means a loss and tax to pay on the 4%!. Bugger that. Just blow it on stuff you can store. Consider the number of bog rolls the family consumes. Buy them by the score and save heaps. Same with many items. If you have an attic, stuff it with stuff. Never walk past a Sally's store without checking to see what they have. The loot should be spent on food on special in bulk that will last. Get the kids to do the spreadsheet thing and prove the move puts you all in the grove!

Yeah, I guess you're right.

Yeah, I guess you're right. But our attic won't be filled with tins of food just yet, or a TV for that matter (hubby jokes that I am like the French Social Security - whenever he wants something, usually something he doesn't need, I explain to him how to do without). We actually need to do some urgent landscaping around the new house so it doesn't look like a building site anymore, so we were saving for it (bad habit of ours, saving before we spend!). By the sounds of it we'd better make sure to get it done before Sept.

Re # 4 : Why did the Oz

Re # 4 : Why did the Oz Treasury report on the 2004/5 years ? The ATO has figures for 2007/8 available ! And those tax returns show the energy/mining industry paid 14 % of the total corporate tax take in Australia . Not 8 % as in 2004/5 .

Is the treasury in Kevin Rudd's pocket ? Trying to make the super-mining-tax look like a reasonable idea ?

Arron Davis runs "Investment

Arron Davis runs "Investment and Projects" I suppose "Projects" means housing projects? Answer understood. GST will increase the price of everything not just property....except wages/returns from investments. Econ 101 tells me that when price goes up while income remains constant the demand for everything will fall...pray tell me why property will be different or are we still in the "property prices will never fall" ideology space still ?? Rent will increase only up to the extend that wages increase unless you expect tenants to starve in order to pay increasing rents...How much have wages increased this past two years or the coming few years in a deflationary/recessionary situation ? When Japan raised their GST from 2% to 3% in the 90's it immediately tipped their recovering economy (crashed from first financial crisis) into another recession. NZ should have a good read on this matter about the coming GST hike.

Background: Europe is falling apart (economically if not politically) as recession bites and goverment cuts their spending.There will be no more pump priming from EU goverments in the foreseable future....US economy is again stalling and China is entering downturn phase due to financial tightening and export downturn...Do NZ really believe we are "different" ?

Rudd thought he would go down

Rudd thought he would go down as the Robyn Hood pm...silly bugger is set to be remembered as the Dick Turpin from Qld.
Best drama come comedy on tv..chan 90 at 4pm.

Given how badly Michael

Given how badly Michael Cullen's Super-Income 39 % Tax crunted the NZ tax system , and filtered into distorting the whole economy into property and tax avoidance .......... One can't believe Rudd & Swoon to be so daft as to propose a variant of it in OZ ..... somewhere over the rainbow , those socialist wastrals ........

Arron Davis in No 1 should be

Arron Davis in No 1 should be discounted since it is clearly in his business interest to hype the property market.
And please could he provide some evidence that shows building costs leading price of established houses upwards. In reality, building costs lag house prices.

"The IMF warned overnight

"The IMF warned overnight that Spain's economy needed far-reaching reforms to ensure its recovery, BBC reported."

If they could bail out Greece, surely they can also bail out Spain, right?

#6 Bernard, Bernard, Bernard,

#6

Bernard, Bernard, Bernard, sigh, your commentary is always so predictable (biased toward your stated stance), What are the chances that bond rates in NZ will drop due to a flight away from highly indebted so called 'safe havens'? The US and the UK are the biggest beneficiary's of the current Greek crisis because it takes the focus away from them. In a slow growth world economy our primary production based, low risk verdant isle may be very attractive.

Neven

" our primary production

" our primary production based, low risk verdant isle may be very attractive "

Surely you cannot be serious - if things here were so successfully production based, then why would government debt at the current levels be neccessary.

NZ has a chance to avoid falling in the same (debt) hole that the rest of the developed world is disappearing into. That chance sadly is not being taken up.

Anon: You've been reading to

Anon: You've been reading to many op-ed pieces by Bernard, Have you actually compared our sovereign debt with outher western nations? NZ has one of the lowest budget deficits and lowest sovereign debt in the OECD.

Yes, all thanks to good ol'

Yes, all thanks to good ol' Labour...

Neven 911 Check out the New

Neven 911

Check out the New Zealand dollar in recent days. I'm not sure it's seen as a safe haven yet...
Remember that our foreign debt to GDP ratio is pretty high compared to some other countries, even if public debt is relatively low.

cheers
Bernard

Bernard, Don't confuse short

Bernard,

Don't confuse short term volatility with a long term prediction, Those countries with a deficit north of 10% can run but they can't hide, I predict great waves of 'destructive' liquidity sloshing around in the months to come. In a way you are contradicting yourself, on one hand you bemoan the fact that the NZD is an over-traded currency and on the other you are suggesting that the nominal day to day value of it has meaning

Neven

Bernard You seem to have

Bernard

You seem to have always have difficulty separating the issues with sovereign and private debt, hence it suits to lump the two together when it backs your bleak view. As long as the NZ gov can slowly turn the ship (without chucking everyone overboard as some mindless contributors suggest) then NZ could get stable a lot faster than the competition. The issue i don't agree with is leaving the nz dollar floating in a sea of sharks.

Neven

NZforeign debt is 50% of GDP.

NZforeign debt is 50% of GDP. For comparison US 98%, Spain 165%, Italy 101%, Australia 92%, UK 416%...

5. Kevin Rudd will go down in

5. Kevin Rudd will go down in Australian fiscal history as making the biggest mistake ever, in his decision to "supertax" the mining industry .... talk about "kill the goose that laid the golden egg" !

Worldwide pundits have already cottoned on to this, therefore the huge drop in the AUD rate.

Waltzing matilda, waltzing Matilda, who will come a waltzing with me ... not I says the Manhattan FX trader.

Now watch the foreign investors in the Aussie residential property market squirm ... that exchange rate drop just wrote off 10% of that recent purchase of the Melbourne "bungalow" for
AUD 1 Mil....

So the above will not only hurt the mining industry, but burst the currently most over-inflated property bubble in the world.

This is a good thing to burst this bubble but it will come at a great cost to the 'lucky country' ?`

With a decision maker like Rudd, who needs the EU to stuff up the local economy !

as far as I am concerned gold

as far as I am concerned gold is just a totally overvalued lump of metal
struggle to see its intrinsic value at all
it can be quite beautiful though.Although no more beautiful than a view of the harbour on a nice day, and less beautiful than my wife and children who I have for free (well not exactly...)

bullfrog - yep the bursting

bullfrog - yep the bursting of the Aussie bubble is coming anyday soon....

"the exploitation implicit in

"the exploitation implicit in "globalization" was Neoliberal Capitalism's Last "Fix." The over-extended, over-indebted, over-capacity, over-indulged domestic populations were no longer able to borrow and buy enough goods to fuel the astounding over-reach of the State and its Power Elite partners.

The "fix" was to go abroad and exploit/stripmine others' resources, labor and assets, and introduce them to the addictive charms of easy credit at low introductory rates.

Once globalization (essentially an updated, "improved" version of colonialization) harvested the easy fruit, global capital returned home to stripmine the domestic citizenry via various asset bubbles which incentivized speculation and consumption funded by massive borrowing.

Let us be crystal-clear about the purpose of zero interest rate policy (ZIRP): to destroy all incentives for saving and capital accumulation, and to reward and incentivize borrowing, leverage and speculation. More credit means more debt, which means more fees for Wall Street, more fees and interest payments to the banks, and more taxes to the Savior State. Only the borrowers lose."

Charles Hugh Smith at his best!

http://www.oftwominds.com/blog.html