In this section
The comment stream
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The news stream
- English reminds savers of no guarantee 28
- RBNZ drops talk of future rate hikes 27
- Auckland Mayor tweaks commercial vs residential rates 16
- ANZ NZ annual profit up 25% 14
- What happened Friday 13
- Friday's guest Top 10 12
- 90 seconds at 9 am: US Fed ends QE 12
- HSBC offers one year mortgages at 5.39% 9
- 90 seconds at 9 am: US grows strongly 6
- Record annual profit for BNZ 6
Top 10 at 10: NZ house prices to fall 10%?; Bond vigilante bellows; Dilbert
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...
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.
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.
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.
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...