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Tuesday's Top 10 with NZ Mint: NZ housing more over-valued than Australia, UK; Sydney, Melbourne world's 4th,5th most expensive cities; Top Indian cop sees NZ as tax haven for corrupt money; Dilbert

Posted in Opinion

Here's my Top 10 links from around the Internet at 1 pm in association with NZ Mint.

I welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz.

I'll pop the extras into the comment stream. See all previous Top 10s here.

My must watch today is Mitt Romney serenading some billionaires at #10.

1. Among the 'best' in the world - A Deutsche Bank report on global house price valuations reckons New Zealand's house prices are 44% over-valued, which makes us more over-valued than Australia, Spain and Britain.

The survey, reported in BusinessInsider, says that only Norway (48%), Canada (54%) and Belgium (56%) are more overvalued than New Zealand.

But, as our property bulls will tell us, it's different here.

Councils won't allow new houses to be built.

Migration is keeping demand high.

Interest rates will stay low forever.

Governments will never tax landowners more.

No worries then.

Here's the thinking behind the report, which says Greece's houses are fairly valued and Japan's houses are 37% undervalued.

Torsten Slok, chief international economist at Deutsche Bank Securities, has a new report examining global home prices.

Specifically, he looks at the relative valuation of housing markets as measured by price/rent and price/income and compares those ratios to historical long-run averages.

Slok argues that home prices in many countries in the developed world are still overvalued. Across the Euro area, home prices are still overvalued by 14 percent.

2. Still expensive - Sydney and Melbourne are among the world's most expensive cities to live in, according to the Economist Intelligence Unit's survey this year of the Worldwide cost of living. It looks at the cost of white bread in US$ terms, then and now.

Here's the table. NZ is not included:

3. What a debt death spiral looks like - Greece is the model right now, says David Blanchflower, a former member of the Bank of England's monetary policy setting committee, in this Guardian piece.

For all the deals being signed in Athens and Brussels, the Greek people have worked out that they have no hope; protest and social unrest now looks a rational option to the ordinary people who are bearing the cost to bail out European banks. Cuts in the minimum wage right now are probably not very smart politics.

Greece does still have a card to play – which is "one down, all down". An exit from the euro would result in a depreciated drachma, which would potentially give a much needed boost to tourism. And that sounds better than all other alternatives currently on offer. There is still time for Germany's Angela Merkel to get out her cheque book; but otherwise, it's all over – and quite possibly very quickly.

This really is what a death spiral looks like.

4. Oh the irony - Geek.com reports the Chinese government is seizing iPads because Apple has been deemed by a Chinese court to have breached copyright (!) because a Chinese company has claimed ownership of the name 'iPad'.

The problems started last year when Proview Technology claimed ownership of the trademark for the name iPad in China. Proview took Apple to court and has now apparently won the case, deeming all iPads illegal in China effectively.

The knock on effect of that is the Chinese Administrators of Industry and Commerce (AIC) department is now actively seizing the tablets. Stores are being visited by AIC representatives and any iPad stock is confiscated. This has led to stock being hidden from view and sales continuing, albeit it on the hush.

Apple is expected to appeal the decision of the court, though. The problem being, this is a U.S. company against a Chinese company in a Chinese court, so the odds aren’t great Apple can win.

5. All about the carry trade - Bloomberg points out the New Zealand and Australian dollars are headed for the heavens while we run higher interest rates than the money printers in Europe and America. Yet we do nothing.

“There’s less nervousness in the market in general,” Jose Wynne, the head of North America foreign-exchange research at the investment banking unit of Barclays Plc, said in a Feb. 7 telephone interview. “Now that the central banks are pumping on one side of the system, you have people jumping on carry trades everywhere.”

The currencies of New Zealand, Mexico, Brazil, Indonesia and South Africa are poised to rally this year against the greenback, euro, pound and yen, Wynne said. All those countries have benchmark interest rates between 2.5 percent and 10.5 percent, higher than rates of zero to 1 percent in the U.S., Europe, Japan and the U.K.

6. We're an easy touch - India has more than US$500 billion stashed in tax havens, including in New Zealand, says India's top cop in The Times of India.

This is another way of looking at the carry trade. Borrow/steal/extort at near 0% and then buy hard Kiwi/Aussie assets at 4% plus...

Easy money...way too easy.

"It is estimated that around 500 billion dollars of illegal money belonging to Indians is deposited in tax havens abroad. Largest depositors in Swiss Banks are also reported to be Indians," CBI director A P Singh said speaking at the inauguration of first interpol global programme on anti-corruption and asset recovery.

"53 per cent of the countries said to be least corrupt by the Transparency International Index are offshore tax havens, where most of the corrupt money goes. The tax havens include New Zealand which is ranked as the least corrupt country, Singapore ranked number five and Switzerland number seven," Singh said.

7. Why the clean tech boom went bust - Here's a useful Wired article

Big Oil's government subsidies are bigger than clean tech's subsidies, and they're fighting to keep them.

Despite the fact that renewable energy received only a quarter of the subsidies that fossil-fuel-based electricity received between 2002 and 2007, it’s wind and solar that are on the chopping block.

Even solar’s biggest allies on Capitol Hill—people like Edward J. Markey, a top Democrat on the House Energy and Commerce Committee—fear the industry’s oil and gas foes may have gotten the upper hand now that the clean-tech bubble has burst. “We are not Panglossian about what lies ahead,” Markey says. “The fossil fuel industry and its allies in Congress clearly see the solar and wind industries as a threat and will try to kill these industries as they have for the preceding two generations. They want this to be a five-year aberrational period.”

8. Who pays for the writedowns? - This will be the central theme of our age. Who is going to pay when debt is inevitably restructured and written down because the borrowers can no longer afford to pay the interest or repay the loan.

This month's 'robo-signer' settlement in America was one tiny part of that rolling global restructuring process that could take decades.

The debate is over whether bank depositors pay for it (by receiving interest rates less than inflation), whether bank shareholders pay for it (with writeoffs on their equity), whether governments and taxpayers pay for it (by rescuing banks and bond holders), whether bond holders pay for it (with debt restructurings and haircuts) or a combination of all of these.

Here's the world's biggest bond fund PIMCO grumbling over mutual funds and bond funds having to pick up the bill, rather than banks. We'll see a lot more of these disputes in years to come.

Here's PIMCO via Money News:

In what the U.S. called the largest federal-state civil settlement in the nation’s history, five banks including Bank of America Corp. and JPMorgan Chase & Co. yesterday committed $20 billion in various forms of mortgage relief plus payments of $5 billion to state and federal governments.

“This was a relatively cheap resolution for the banks,” said Simon, the mortgage head at Pimco, which runs the world’s largest bond fund. “A lot of the principal reductions would have happened on their loans anyway, and they’re using other people’s money to pay for a ton of this. Pension funds, 401(k)s and mutual funds are going to pick up a lot of the load.”

9. Moody's cuts again - Reuters reports the ratings agency has cut the ratings outlooks for Britain, France and Austria.

10. Totally relevant explanation from Stephen Colbert of how Super PACs work in America's electoral system. If you believe America has a democracy you need to watch this.

"22 billionaires decide who our leaders will be."

Mitt Romney serenades them in the best piece of political satire I have seen in quite some time.

 

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?

We welcome your comments below. If you are not already registered, please register to comment in the box on the right or click on the "'Register" link at the bottom of the comments.

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.

18 Comments

John Key has a 'one size fits

John Key has a 'one size fits all' strategy for each and evey problem New Zealand faces.
Sell Assets
Auckland transport- sell assets
Christchurch rebuild- sell assets
National Deficit- sell assets
Brilliant plan John. So for each and every problem we face he has one answer, one answer that has not worked for us before.

Asset sales out of Auckland transport debate
http://www.nzherald.co.nz/politics/news/article.cfm?c_id=280&objectid=10...

No. 2 is just silly. Are they

No. 2 is just silly. Are they serious or tongue in cheek. What loaf are they measuring? The cheap non-discounted loaf at coles for $1, or the mid range loaf at $3?
Discounting the el cheapo option, the mid range loaf is a similar price in Adelaide to Auckland. So applying the economist logic the cost of living is the same in auckland as Adelaide. But that's BS. Petrol is about 30 % cheaper. Rent about 20% cheaper. Power about 20% cheaper etc etc

Steak and beer?

Steak and beer?

The Economist Intelligence

The Economist Intelligence Unit - with their loaf of white bread study.
Hope they didnt spend too much of their intelligence on that.

#1,#5 #6 So that is why

#1,#5 #6
So that is why Auckland house prices are soaring.
Hot Indian and Chinese money?

Zero hedge on the downgrades

Zero hedge on the downgrades in Europe
 
Moody's actions can be summarised as follows:
- Austria: outlook on Aaa rating changed to negative
- France: outlook on Aaa rating changed to negative
- Italy: downgraded to A3 from A2, negative outlook
- Malta: downgraded to A3 from A2, negative outlook
- Portugal: downgraded to Ba3 from Ba2, negative outlook
- Slovakia: downgraded to A2 from A1, negative outlook
- Slovenia: downgraded to A2 from A1, negative outlook
- Spain: downgraded to A3 from A1, negative outlook
- United Kingdom: outlook on Aaa rating changed to negative

http://www.zerohedge.com/news/moodys-downgrades-italy-spain-portugal-and-other-puts-uk-france-outlook-negative-full-statement

Can't wait for a UK

Can't wait for a UK downgrade, though I suspect it will be even more of a letdown then the US downgrade.

Re #1   The calculations are

Re #1
 
The calculations are erroneous because they compare average rents with average house prices, when in NZ most rentals are at the lower end of the market, hence the rent to price ratio look appaling which it isn't.
 
In places like Switzerland and Germany rentals cover the whole market hence the rent to price ratio looks fair.
 
Our income to price ratio of overvalued by 19% is probably a fairer representation.
 
 

They should use the new

They should use the new measures, Central Bank interference + Govt support + Bank potential profits + urban growth limits * number of local council members with property investments = fair value.
 
If it was me I'd compare the net yield to govt bonds, and the higher yield is undervalued.  Homeowners be dammned, the world is seperating into the haves and have nots, and those that have will have more, and those that have not will be the slaves of the future.

the Greek people have worked

the Greek people have worked out that they have no hope
Learn from the Greeks, there is no hope.  "It's only once we've lost everything, that we are free to do anything."

On the bright side Bernard a

On the bright side Bernard a high exchange rate will allow Kiwis to invest overseas, "creating new opportunities outside of housing" which is why we had to sell our power stations.
 
NZD M3 is growing at 6% AUD M3 8.7%, USD M3 4%, EUR 1.6%.  In actual fact currently our currencies are getting debased at a faster rate.  They are also becomming far more levereaged off of a static amount of M1.  There will be a deleveraging at some point, most likely by increasing M1. 
 
We are a net import nation, so surely a higher currency is a good thing?

Skudiv:  "we are a net import

Skudiv:  "we are a net import nation, so surely a higher currency is a good thing?"
Is that correct?  Often we run a trade surplus, making us a net export country, or maybe neutral. 
What we run is a chronic current account deficit, currently over 4% of GDP.  This is due to our economic model of borrowing overseas to feed our property addiction, and then having to pay back interest.  Plus selling our silver overseas (banks, farms, etc), and having to pay profits overseas perpetually. 
I guess that you are still correct, in that a strong dollar means that all these reimbursements can be paid with less NZ dollars.  Freeing us up to borrow yet more overseas, and sell yet more assets overseas at a favourable rate.
So yes, favourable, in a Micky Mouse sort of way
 

Global suicide 2020: We can’t

Global suicide 2020: We can’t feed 10 billion

Commentary: Create a ‘new agriculture’ or capitalism self-destructs
 
http://www.marketwatch.com/story/global-suicide-2020-we-cant-feed-10-billion-2012-02-14?siteid=rss

Hedge you NZ property with

Hedge you NZ property with some cheap income earning Agri Investments using your high value NZD!
http://j.mp/zU2zMG

Farmland is definatly a great

Farmland is definatly a great buy.  Soon it will all be owned by massive investment funds, and coorporations.  The family farm is history.  What I find ridiculous is that for the same price as a house in Auckland, you can get a decent patch of arable land, with enough change to put a house on it.  Of course you'll need slightly more then a 5% deposit.

Skudiv  Block down the road,

Skudiv  Block down the road, old house with 40 acres just sold for a tad under a million.  A farm of 650 acres sold for just over 3 mill, add 600 k for the livestock. Its quite a good farm should earn you 70k a year after costs.

A least the Chinese haven't

A least the Chinese haven't yet copyrighted other American inventions like the printing press, gunpowder, porcelain, negative numbers, rockets, the compass etc etc.