In this section
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The news stream
- House prices soar, sales weak 69
- Friday's guest Top 10 60
- RBNZ lifts interest rate forecast 47
- Bernard's Top 10 27
- What the RBNZ's OCR decision means 24
- Fonterra slashes profit forecast, axes dividend 24
- 90 seconds at 9 am: Volcker rule flies 15
- 'No investment is absolutely guaranteed' 10
- House prices 'about to cool' 8
- Can the strong NZ$ rescue your UK pension? 8
Thursday's Top 10 with NZ Mint: Marc Rich reincarnated; more Spanish debt; bank bonus pools; lamb prices; Jon Stewart; Dilbert
Here's my Top 10 links from around the Internet at 10:00 am today in association with NZ Mint.
Bernard Hickey is on vacation and won't be back until early May.
I welcome your additions in the comments below or via email to email@example.com.
I am still keen to get your suggestions for suitable cartoons. If you notice a really good one, please email me.
1. A giant among giants
Glencore - founded by famous fugitive Marc Rich - has cornered the market on just about everything. Now that it's going public, will its ties to dictators and spies stand up to scrutiny? It's more than twice the size of some of its biggest rivals. It has annual revenues of at least US$186 bln, far above BHP Billiton's US$72 bln, Vale's US$60 bln and Rio Tinto's US$61 bln.
But things get a bit murky with declared earnings. It said it earned a net profit of US$4 bln last year, whereas BHP Billiton earned US$22 bln, Vale US$23 bln, and Rio Tinto US$7 bln. It seems unlikely - you don't get to be that big by being modestly profitable. Besides, no Marc Rich company ever played thing straight. It deals in commodities with a shady mix of dictators and cronys. It is big, influential, and a threat to open economies everywhere. Ken Silverstein at Foreign Policy has a revealing expose:
And what a business it is. The firm was forced to pull back the curtain on its famously secretive doings to go public, and what it revealed shocked even seasoned commodities traders. Glencore, which Reuters once called "the biggest company you never heard of," turned out to be far more globally dominant than analysts had realized. According to its 1,637-page IPO prospectus, the company controlled more than half the international tradable market in zinc and copper and about a third of the world's seaborne coal; was one of the world's largest grain exporters, with about 9 percent of the global market; and handled 3 percent of daily global oil consumption for customers ranging from state-owned energy companies in Brazil and India to American multinationals like ExxonMobil and Chevron.
It now wants to control the entire business chain, from mines and smelters to storage facilities for finished products, and from pumping oil to shipping it to refineries, while trading and hedging all along the way, industry experts say. "That's one way that Glencore makes so much money," a Geneva-based industry source told me. "When you are vertically integrated you make more at every step."
2. Housing debt woes add to Spanish Govt (and euro) debt pain
Home loans are supposed to be among the safest type of home lending. In fact the RBNZ allows our banks risk-weight them for capital adequacy purposes at levels far below business lending. That then allows the banks to hold much less capital in support of that lending. Its a major factor in the high leverage levels run by NZ banks.
The real estate boom, while it lasted, gave Spain the world’s highest rate of homeownership - with more than 8 of every 10 Spanish households owning the places they lived.
Last week, the Spanish central bank reported that the nation’s nonperforming loans had hit the highest level since 1994. And while the government’s official estimate of mortgages going unpaid is only 3 percent, ... economists say the actual numbers are probably much higher - in double digits for some lenders.
With a rising portion of Spain’s €663 billion, or US$876 billion, in home mortgages at risk of default, many economists say it is only a matter of time before some of Spain’s biggest banks will need a bailout. And the Spanish government, staggering under its own debt and budget deficit burdens, may not have the money to come to the rescue.
3. Who's information is it, anyway?
Harvard University says it wants scientists to make their research open access and resign from publications that keep articles behind paywalls. Publishers are extracting huge revenues from research funded by the public or endowments. The UK Guardian reports:
[A] memo from Harvard's faculty advisory council said major publishers had created an "untenable situation" at the university by making scholarly interaction "fiscally unsustainable" and "academically restrictive", while drawing profits of 35% or more. Prices for online access to articles from two major publishers have increased 145% over the past six years, with some journals costing as much as $40,000, the memo said.
More than 10,000 academics have already joined a boycott of Elsevier, the huge Dutch publisher, in protest at its journal pricing and access policies. Many university libraries pay more than half of their journal budgets to the publishers Elsevier, Springer and Wiley.
Robert Darnton, director of Harvard Library told the Guardian: "I hope that other universities will take similar action. We all face the same paradox. We faculty do the research, write the papers, referee papers by other researchers, serve on editorial boards, all of it for free … and then we buy back the results of our labour at outrageous prices."
4. Bank bonus pools
Patrick Jenkins, who is the Financial Times’s banking editor says it is "clearly time for shareholders to go to war not only over chief executives’ pay, but over the broader bonus pool, too".
Investors feel empowered like never before, both by regulators’ involvement in trying to influence pay structures (especially in Europe) and by the urging of politicians (especially in the UK) for investors to flex their muscles over pay.
Investor activists are hailing the shaming revolts at Citi and Barclays as a turning point – in future, banks will realise they cannot ignore the principle of pay for performance with impunity. At the very least boards will have to do a better job of engaging with shareholders and agreeing on pay principles.
If they have any sense – both for the sake of relations with investors and the general public – banks will overhaul the substance of targets, to make them tougher, and their transparency, to make performance properly measurable against those targets. For too long, too many bank remuneration committees have set nebulous goals for executives.
5. 'Ask a nine-year-old'
Trust is at the heart of good public policy. When its lost, it is almost impossible to be regained, even when moving sensible projects forward. Unfortunately the political process generates so much energy trying to undermine trust in your political opponent, it is no wonder voters get sceptical. Politics is tribal war. (Just look at some of our commenters.)
I am not sure how you cut through the inbuilt cynicism - heck, we even now have full-time fully staffed campaigns pitching no-compromise platforms (usually on the left), countered by trade organisations mobilising other no-compromise platforms (usually on the right). Brave changes of opinion by a politician are almost always rendered as a "weakness" (a "flip-flop"). Its not something New Zealand is isolated from.
Maybe adults need to think differently - like nine-year-olds, or like tech innovators - and apply some tech solutions to these intractable issues. After all, politicians know people don't trust them - and much of that is because of the way conflict is highlighted, and success is ignored. Here's something to think about:
"Nine-year-olds expect from technology things that we've only begun to think about, and they don't have the same status quo assumptions. 'Why can't I use my iPhone to pay tolls or why is there just one person in so many cars?'" said Charles Wheelan, an economist and public policy lecturer at the University of Chicago.
[We need] more imaginative uses of technology. What if every new vehicle had a GPS and you were charged on toll roads, or even city streets, based on how far you were driving, what kind of car you were driving (a gas-guzzling, polluting Hummer versus a Chevy Volt) and what time of day you were driving?
A few politicians may privately concede that a carbon tax is very good policy but grouse that they can't sell it politically. So it goes nowhere. But that's no great surprise, as reiterated by Randy Blankenhorn, the executive director of the Chicago Metropolitan Agency for Planning, a state-created agency that seeks to integrate land use planning and transportation for a seven-county Chicago area region.
When it comes to transportation, "How do we move the conversation forward? How do we talk about it? How do we sell it to a public that doesn't trust us? We haven't done a good job selling our story."
6. A near certainty
Just about everyone thinks the Reserve Bank of Australia will cut its official interest rate next Tuesday. It has been sitting at 4.25% since the end of 2011, while ours is only at 2.5%. The pick is a 0.25% reduction and that will be the start of a series. That will mean that the difference to New zealand will narrow, and the impact could come in the fx cross rates.
But much more attention in Australia will be on whether the mortgage lending banks follow the official rate down. In fact, those banks have been trying to separate the public mind from the official rate and have been inching their variable mortgage rates up by small amounts recently. The SMH has been watching:
Financial markets were last night pricing in four more cuts of 0.25 per cent by Melbourne Cup day, taking the Reserve Bank cash rate down from 4.25 per cent to 3.25 per cent. If fully passed on they would bring down standard variable mortgage rates from around 7.4 per cent to 6.4 per cent. This would cut $190 a month from the cost of servicing a $300,000 mortgage, taking monthly payments below $2,000.
7. Falling prices
We all know that dairy prices are falling, but lamb prices are as well. For the past few years, lamb prices have risen at this time of the year. But worryingly for farmers and our export receipts, prices are declining at this time of the season. Adding to the impact, volumes are lower this year too. It's one reason why the AFFCO lockout is intractable - firms are under volume and price pressure and need more operational flexibility, and without lambs to process, there seems little motivation to bring the workers back without that flexibility. It looks like the workers have tried to resist at the wrong time.
8. An agricultural earthquake
We forget, but we live on a knife-edge here in New Zealand. Biosecurity is vital to keep things like mad-cow disease out of the country. Were it to surface here, the financial impacts would likely be really significant. Keep up the good work, MAF. But mad-cow disease regularly resurfaces overseas. The latest event is in California. Their internal monitoring picked it up. In a previous US outbreak, many countries imposed an immediate ban on imports of beef from the US. It's a reaction we could ill-afford - we are now very dependent on cows. Their health defines us.
9. 'No end in sight'
James Surowiecki at The New Yorker laments the lack of policy focus in the US on getting the level of long term jobless down. He thinks their policy is too focused on low inflation. I think he is wrong about that (the almost reckless level of money-printing to get the US economy moving seems to me all about unemployment and the reduced demand it creates), but he does have a point that we are getting inured to high levels of joblessness, and that is wrong.
But the bigger obstacle may be psychological: the longer unemployment stays high, the likelier people are to get used to it. Five years ago, an unemployment rate of seven and a half per cent would have seemed outrageous, but it’s possible that five years from now it will seem not so bad. A long-term crisis, after a certain point, no longer seems like a crisis. It seems like the way things are.
10. The last laugh
US presidential politics can get a bit tiresome, especially because of the very long time over which it is conducted. But Jon Stewart can lighten it up. Here he is assessing who might be Mitt Romney's running mate.