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Thursday's Top 10 with NZ Mint: Marc Rich reincarnated; more Spanish debt; bank bonus pools; lamb prices; Jon Stewart; Dilbert

Posted in Opinion

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 david.chaston@interest.co.nz.

I am still keen to get your suggestions for suitable cartoons. If you notice a really good one, please email me.

See all previous Top 10s here.

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.

But what if things go wrong? Well, exactly that scenario is playing out in gruesome detail in Spain and Ireland right now, and is at the core of the euro debt crisis. Here is the New York Times:

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.

 

 

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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13 Comments

BE AWARE : The latest scam to

BE AWARE : The latest scam to part investors from their life-savings has surfaced on TV stations  here in Oz , and are we surprised that it's based on  real estate ..... yet again !
 
...... yup , spruikers are running seminars & websites , selling American residential property to gullible Australians ........ some are Yanks , some are home grown scammers ... but all of them exhort you to get cheaper property ( and by de-facto , greater % rental returns ) in the USA , in Detroit , Las Vegas ...
 
... some promise that you'll pay off the capital cost of the house in just 2 years , from the rentals alone .....
 
One brave fellow took a trip to the states , to personally collect the rent from a wayward tenant , and was shot dead ! ......
 
They're not selling Manhattan apartments , which are expensive , yet guaranteed to get you a tenant ...... they're selling rat-holes in the boon-docks , where the last manufacturing plant closed several decades ago ........

Yes. Saw that. One said you

Yes. Saw that. One said you needed a gun ro collect the rent.

Pah - this stuff isnt new -

Pah - this stuff isnt new - there was a US property spruiker posted regularly on here about 18 months/2 years ago (anyone else remember him?) . Same sort of script, buy bombed out housing in places like Illinois and SoCal and get your money back in rental in no time. He was spruiking an aggregate pooled type of investment (as they often do),Of course in the succeeding period US house prices have continued down..........
By the way GBH what are you doing lurking in Oz, I thought you had found Nirvanah in the Philippines.......

..... I raised the issue ,

..... I raised the issue , just in case Kiwi investors need a leetle reminder , that scammy gits are still running amok ...... with little regulationary handbrakes from the financial industry ...... within the real estate sector ......
 
On the other front , the Gummster reserves the right to lurk wherever I darned well please ....... it's a big world , to have fun in ........ or you could stay in NZ instead ...
 
..... outside of the socialistic  imaginations of Green's MP's , there is no " nirvanah " ........
 
Pah !

i find this

http://www.telegraph.co.uk/fi

http://www.telegraph.co.uk/finance/financialcrisis/9226543/Brussels-to-r...
 
 
 

paulw
6 hours ago

 

The politburo makes a change to the 5 year tractor production targets as the bovine masses all begin to stop and stare rather menacingly, in their general direction .....

 
 

http://hat4uk.wordpress.com/2

http://hat4uk.wordpress.com/2012/04/25/greece-why-would-it-be-missed-by-...
Question: Who is the third biggest arms importer in the world, behind India and China?
Answer: Greece
Question: In the period 2006-2010 which country was Germany’s largest market for munitions?
Answer: Greece, which accounted for 15% of total German arms sales.
 
 

LMAO. Except soon it probably

LMAO. Except soon it probably won't be very funny.

Could somebody please explain

Could somebody please explain to me who are the owners of all the debt that we as
individuals and what seems like most countries in the world are in debt to.
It is very confusing. Assets = Debt + owners equity. If  the debt of this equation is unpaid
or (unpayable) ownership of the asset  transfers to the debt owner as the current owner has
lost all their equity 
Just who is the great debt owner?or owners?
 If everybody owes everybody, who owes everybody, at whose doorstep does the money pot 
 ( debt principal + acumulated interest ) finally end up at?
Is it China, is it Mr and Mrs Rothschild, or is it a bunch of old ladies sitting around a tea table
in the hilltops of Japan .

Do you one better, the

Do you one better, the Reserve Bank of New Zealand can do it.
http://www.rbnz.govt.nz/research/bulletin/2007_2011/2008mar71_1lawrence.pdf
 
 
 

Savers? Pension funds? Hedge

Savers? Pension funds? Hedge funds?  Sovereign wealth funds?  Bond holders?