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Monday's Top 10 with NZ Mint: Hard landing looks more likely in China; Greece to run out of cash within weeks; A flying shopping trolley; China's banks built on quicksand'; 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 read today is #9 on China's banks. I love a good discussion about capital quality and non performing loans, particularly the ones that get rolled over by the government...

1. China slows sharply - With all the noise about Greece and JP Morgan over the weekend, most people missed the bigger news.

Data was published showing China's economy slowed very sharply in April, FT.com reported.

Market players are now baying for some stimulus from the Chinese government.

Related Topics

But this may not happen as quickly or as decisively as it came in late 2008 and early 2009 (and saved NZ and Australia from the worst of the GFC).

There is a lot of bad debt weighing down the local governments that did a lot of the stimulus spending last time around. The banks aren't that healthy either (see #9 below).

Also, many of the politicians are more worried about inflation and housing affordability than last time around.

And, most crucially, China's political leadership is fractured in the wake of the Bo Xilai scandal and ahead of the leadership changeover later this year.

Here's the FT with some atmospherics:

A broad range of official monthly data released on Friday by the Chinese government showed much weaker industrial activity, retail spending and investment than analysts and officials had predicted. These numbers, together with weak trade figures released on Thursday, paint a picture of a continued deceleration in Chinese economic growth.

“Data on April spending and output put another nail into hopes that China’s economy is bottoming out,” said Mark Williams, chief Asia economist at Capital Economics. “This run of poor data will shake policy makers’ confidence and we expect it to prompt further policy easing.”

2. 'China actually contracting now' - Gordon Chang at Fortune has a somewhat more alarming interpretation, backed up by some on-the-ground stats, particularly around new lending, electricity production and orders by toy factories on the coast.

Beijing needs to do something fast.  New lending is considered the third-most reliable indicator of economic activity in China, so it’s apparent the economy is in distress.

That conclusion is confirmed by the most reliable indicator, electricity output, which last month grew by only 0.7% year-on-year.  Because the growth in electricity historically outpaces the growth of the underlying economy, the best China is doing at the moment is hovering around 0%.  In all likelihood, it is contracting.  And this is occurring when the Chinese economy almost always shows robust expansion.  In China’s export belt it is, after all, the beginning of the Christmas season.

Orders placed at the most recent session of the closely watched Canton Fair fell more than 4% from the October session.  As they said at the conclusion of the event a week ago, factories producing for Christmas are now feeling an “early winter.”

3. 'We'll be out of money soon' - Greece's Deputy Prime Minister warns in this Telegraph interview Greece will be out of cash within weeks and the anti-austerity parties shouldn't be so sure the Germans are bluffing about kicking them out of the euro.

"The majority of the people voted for a very strange mental construction," he said. "We want to be in the EU and the euro, but we don't want to pay anything for the past."

Mr Pangalos warned: "There is a school of thought that says the Germans are bluffing. They need Greece and will never throw us out of the eurozone. But what will happen, which is almost certain, is they will not give us the money to pay our debts.

"We will be in wild bankruptcy, out-of-control bankruptcy. The state will not be able to pay salaries and pensions. This is not recognised by the citizens. We have got until June before we run out of money.

4. Eurodammerung - Paul Krugman details here what he thinks the Greek end game looks like. It ends with the break up of the Euro.

1. Greek euro exit, very possibly next month.

2. Huge withdrawals from Spanish and Italian banks, as depositors try to move their money to Germany.

3a. Maybe, just possibly, de facto controls, with banks forbidden to transfer deposits out of country and limits on cash withdrawals.

3b. Alternatively, or maybe in tandem, huge draws on ECB credit to keep the banks from collapsing.

4a. Germany has a choice. Accept huge indirect public claims on Italy and Spain, plus a drastic revision of strategy — basically, to give Spain in particular any hope you need both guarantees on its debt to hold borrowing costs down and a higher eurozone inflation target to make relative price adjustment possible; or:

4b. End of the euro.

And we’re talking about months, not years, for this to play out.

5. Italian-style tax protests - Social unrest is turning ugly in Italy, where protestors are fire-bombing tax offices, The Telegraph reports.

The government is considering stationing troops outside said tax offices....

Annamaria Cancellieri, the interior minister, said she was considering calling in the army in a bid to quell the rising social tensions.

“There have been several attacks on the offices of Equitalia in recent weeks. I want to remind people that attacking Equitalia is the equivalent of attacking the State,” she said in an interview with La Repubblica newspaper.

Saturday night’s attack took place on the Equitalia office in Livorno and the front of the building was left severely damaged by fire after the bombs exploded. The phrases “Thieves” and “Death to Equitalia” were sprayed onto outside walls. It came just 24 hours after more than 200 people had been involved in running battles with police outside a branch in Naples which left a dozen protesters and officers hurt.

6. WTF - John Key thinks Christchurch should have a covered rugby stadium...

Eric Crampton's view on his OffsettingBehaviour is the correct one.

No.

Please.

God.

No.

There is absolutely no evidence that stadiums help broader city economies; what evidence we have points in the opposite direction. Spending a pile of money on a stadium is best seen as providing a  consumption good for sports fans and a transfer to sports teams. Maybe a rich city that isn't trying to rebuild a substantial portion of its base infrastructure after an earthquake for which it was under-insured could consider it. Encouraging Christchurch to do it now is reckless.

7. Financial Repression - Grant's Interest rate Observer Jim Grant tells CNBC in this video that financial markets are a lot like 'The Truman Show'. He compares investors to Jim Carey and says gold is likely to move higher. He says the world is in a bull market for fear. HT Zerohedge

 

8. Fourth time lucky - Reuters reports Spain announced its fourth attempt in four years to clean up its bombed-out property lending sector.

This is not going to end well.

Youth unemployment there is well over 50%.

9. China's big banks more like paper tigers - Jonathan Weil at Bloomberg thinks China's big banks are built on quick sand. He has a closer look at their accounts.

The warning signs about China’s construction boom and state-owned banks have been evident for years. News reports of local-government financing vehicles that can’t repay their loans are so abundant, they are hardly surprising anymore. The Big Four banks each have set up loan-loss reserves ranging from about two to three times the size of their nonperforming loans, which probably are understated to begin with. Those reserves wouldn’t be enough should loan losses return to historical norms.

Charlene Chu, a Beijing-based analyst for Fitch Ratings, wrote in a Dec. 2 report on Chinese banks that “Fitch expects the authorities to continue a selective policy of forbearance and liquidity support for borrowers, including loan rollovers and restructurings, new loans, and bond issuance.” As a result, “asset quality issues may not fully appear in NPL (nonperforming loan) ratios until well into a deterioration, if at all.” By the time any big problems show up in the banks’ numbers, the jig will be up.

The hard part is figuring out the timing. Foreign shareholders would suffer the brunt of any losses should the government need to inject capital or restructure the banks again. The banks would survive, though. The Chinese government is like Wall Street in that it always pays itself first.

10. Totally fun thing to do with a shopping trolley and a couple of propellors - Not sure this is registered by the FAA.

 

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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38 Comments

Christchurch is welcome to

Christchurch is welcome to rent Dunedin's stadium......I bet they could get a good deal.

Have you seen this article

Have you seen this article Bernard?
http://www.stuff.co.nz/sunday-star-times/latest-edition/6911543/Mortgage...
Would love that to happen in NZ, but the devil-worshipping property moguls will no doubt vito the idea.

Whew I though calling it

Whew I though calling it criminal behaviour was being pointed, now those who bow down to Mammon. Probably close to the mark though, no pun intended.
 
Actually the deposit ratios only affect the time to an implosion, not the outcome, which is assured under fractional reserve banking and the charging of interest. 

The word is veto. Yes, and

The word is veto.
Yes, and the Banks will be rushing to support this idea  -   so all the assets their loans are based on can deflate. 

A large chunk of the GFC can

A large chunk of the GFC can be laid at the door of those pollies in America & Europe who unshackled banks and property buyers from the 20 % deposit rule ......
 
..... Mike Pero is having a jerk-off , claiming that re-introduction of the 20 % deposit rule will force first home buyers out of the market ......
 
They shouldn't be there , if they can't afford to borrow at a prudent level ...... and their departure from the market will lessen demand for houses .....
 
........ wither go prices thence ?

Cheers. But did you see this

Cheers.
But did you see this article on the same subject on May 13.
Sunday Star Times at least 10 days late on that.
http://www.interest.co.nz/news/59122/reserve-bank-deputy-governor-grant-spencer-confirms-january-increase-core-funding-ratio-o
 
cheers
Bernard

Yeah, that one was a bit too

Yeah, that one was a bit too wordy for me :)

There seems to be a lot of

There seems to be a lot of vitriol about the Dunedin stadium. I havent seen much detailed info on it but it doesnt seem to be too over-the-top and seems to be a pretty good asset for Dunnerd . Is it really going to be a permanent liability? Is there no way it can be run in a profitable way? 

VL - From your comment I

VL - From your comment I assume that you are not a Dunedin ratepayer, who will be saddled with a lifetime of debt repayment for this white elephant.  I propose that all Central and Local Gov't politicians who sanction these types of projects should underwrite any future losses. 

One of my workmates was

One of my workmates was complaining that his great grandchildren would still be paying for the stadium.

You're right i'm not a

You're right i'm not a Dunedin ratepayer and if I was I'd probably have a very different opnion, but from afar it seems like a relatively modest stadium built in a place with demand for just such a facility. 
Is the problem in the way the construction was funded, or the ongoing operation is funded? I understand that stadiums can be horrific white elephants, but the Dunners one, as I said, seems to be relatively modest and seems likely to see 30 events per year so I'm surprised they can't make it work....

The cost of the stadium was

The cost of the stadium was $224.4 million, projected cost $198 million. There was a loss of $1.9 million in operating the stadium for the 1st 6 months of the financial year, and millions more in losses are expected in the next 3 years.

The Wellington Stadium cost

The Wellington Stadium cost $130m to build and holds 36,000 people while the Tribute to the Dunedin Old Boys costs $224 and only holds 31,000 people. Wellington got the better deal.
In a town which is going backward at a great rate. Where jobs are constantly being lost (Hillside, Sealord, ANZCO, Mainland, PPCS, PGGWrightsons, Mediaworks, etc..) and the Student Population (the cities golden goose) has dropped over the past 4 years. This was a total corrupt move buy all parties involved - rugby union, council, land owner, financier, construction company to milk the aging populas of Dunedin. Southland ratepayers must be so so glad they are not on the hook for this lemon... 

Thats not pretty is it

Thats not pretty is it Trolley?

They've also discovered that

They've also discovered that the Dunedin airport runway is too short to take the fully loaded 747s that transport big band sound and light gear. So - no big band gigs, unless gear is trucked from Christchurch.

If big stadia were actually a

If big stadia were actually a profitable venture, then private investors/ developers would be building them (or at least fighting with coucil to get consent....). If cities want to build them as (perpetually loss making) 'cultural venues' then fine, but lets be honest and say so.We already have a stadium in Chch, even if it is 'temporary'. We are filling it for now (novelty value, anyone?) but what was the average attendance at Jade/ AMI stadium over the last few years? Surely right now we need to focus on fixing the rest of the shattered infrastructure.

Re Item 6 Key is a banker

Re Item 6
Key is a banker (sort of) and bankers want us to be in debt. So yes covered stadium please.
Key also wants us to sell off all of our CCC owned assets so yes- why not suggest a bunch of stuff we cannot afford- then make us sell off stuff we already own to pay for the new stuff.
That man should be selling TVs at Bond and Bond.
 
 

He is so shallow and bereft

He is so shallow and bereft of original ideas it is truly staggering. Even that other bunch of incompetents at Treasury have blown his financial hub idea out of the water. Remember his hissy fit when questioned on it in 2010 and telling Gerry to just do it and quick smart? His use of Ireland as an example after the GFC was a nice touch too.
"John Key's plan for a financial services hub in New Zealand would require years of taxpayer support and risks transferring wealth offshore, Treasury has warned the Government.
The Government's lead economic and financial policy agency advised that plans to pay international banks to move here represent "a wealth transfer from New Zealand taxpayers to overseas financial institutions".
Further, the touted benefits were highly uncertain.
Following queries from the Sunday Star-Times last week, Key distanced the government from the controversial aspects of the plan."
http://www.stuff.co.nz/sunday-star-times/latest-edition/6910087/Key-backs-off-hub
 
His legacy is going to be so underwhelming - probably limited to a single sentence. "He was very popular with many kiwis who thought he was a really nice guy and was always ready with a smile and a wave"
 

Perhaps John Key is onto it,

Perhaps John Key is onto it, who needs power stations when you can own a new covered stadium. Selling the generators and building a covered stadium is logical in some perverted world which I dont belong to and dont understand.
 He was in Napier at the weekend, at the National party conference. He told us to produce more and work harder and concentrate on exports.  He told us that Indonesians only get two drops of milk a day on average and if they drank two glasses a day they would drink all of the milk NZ produces and we all would be rich in Kiwi land. The guy's a genius. He also told us half the reason we are poor is that there isn't enough of us, he thinks if there where twice as many of us we would all be rich. It was only a few years ago that Bloger told us that if everyone in China wiped there arse with a bit of NZ paper then all our wood wood be used up in a few years and we would all be rich.  Its so much easier to say-look over there, rather than face the reality and give some answers to some hard questions.

DonKey. Fully paid up member

DonKey. Fully paid up member of the Growth Brigade.

KEY SERIOUSLY OUT OF HIS

KEY SERIOUSLY OUT OF HIS DEPTH ON CHRISTCHURCH
 
The unfortunate reality is that Key, Brownlee and Parker got it seriously wromng from Day One - 4 September 2010 - with respect to Christchurch. Something I have written extensively about, with the last article for Interest Co NZ September 2011 -
 
http://www.interest.co.nz/property/56362/opinion-hugh-pavletich-sees-political-circus-running-rebuild-and-objects-taking-garde
 
Leaping in to the CBD fiasco via the CERA vehicle with of all people Warwick Issac's leading it, is idiotic to say the least. Issacs is the former Town Clerk of the Timaru Council - hardly a place known for its development expertise. He had been responsible for CERA's Demolition Division - which is not performing spectacularly.
 
By the Government moving in to the Council created CBD Planning fiasco with a "think big" wish list of ephemeral projects, will lead to massive cost blowouts and whopping on going operating losses if it is allowed to continue. One can be sure that the "lucky" CBD land owners will screw taxpayers / ratepayers to death, once the location of these projects is finalized.
 
 The whole thing is being rushed as well - while in the meantime the real needs of the people with respect to affordable fringe housing are being completely ignored.
 
Understandably the Mayors of Waimakariri and Hurunui are expressing considerable alarm as these small Counties are being "swamped" with demand for new more affordable housing. On a population basis Waimak is now consenting 10 times the volume of residential consents Christchurch is (March 2012 Stats NZ) - a consenting rate of 30 / 1000 with Christchurch at 3 / 1000, barely normal replacement. Christchurch is being hollowed out.
 
At its peak Irelands build rate per 1000 population hit 20 / 1000 - so the unnecessary and hugely disruptine pressure on the smaller Counties such as Hurunui, Waimak and Selwyn is enormous.
 
 
Talk about "The Blundering Government". But Key would understand that as he came from Merrill Lynch. Its worth reading Vanity Fairs "The Blundering Herd" to understand better the culture that shaped Key -
 
http://www.vanityfair.com/business/features/2010/11/financial-crisis-excerpt-201011
 
Christchurch information / discussion is constantly being updated on the Cantabrians Unite www.cantabriansunite.co.nz facebook page.
 
Hugh Pavletich
www.cantabriansunite.co.nz
www.PerformanceUrbanPlanning.org
 

  I am stuck on a really

 
I am stuck on a really basic level in Sim City and my creation is suffering a very non humorous retardation because I spent all my money on a Stadium, are there any Sim players out there that can help me…?  it was really cool to watch the ribbon cutting animation when I built the stadium though.

That's simple, you obviously

That's simple, you obviously left building your stadium too late in the game! Remember, don't fall into the trap of starting the game by building a powerplant then the usual residential/comercial/industrial zones. Powerplants are for smucks! Instead, the secret is to spend all your funds on stadiums right from the get go! Trust me, as a simcity pro, I can assure you that the quickest way to get your town thriving is to smack down multiple stadiums as quickly as possible. Failing that, I have heard rumours that building lots of museums and/or marinas will also help you on your path to virtual prosperity. Good luck!

AUSTRALIA HOUSING: INVENTORY

AUSTRALIA HOUSING: INVENTORY SURGE
 
Leith van Onselen of MacroBusiness au on latest RP Data Report -
 
http://www.macrobusiness.com.au/2012/05/homes-for-sale-surge-rentals-fall/
 
Hugh Pavletich
www.cantabriansunite.co.nz
www.PerformanceUrbanPlanning.org

Oil prices could double by

Oil prices could double by 2022, IMF warned
The new IMF "working paper" come as the value of crude on world markets remains at the historically high level of $113 a barrel and just after the International Energy Agency reported that consumption would accelerate for the rest of this year in line with a wider economic recovery.
Undertaken amid mounting concerns about "peak oil", the IMF study does not presume that there is a constraint on how much oil can be taken out of the ground. It prefers to believe that extraction rates will depend on the price that will be able to be charged for the final product.
"While our model is not as pessimistic as the pure geological view that typically holds that binding resource constraints will lead world oil production on to an inexorable downward trend in the very near future, our prediction of small further increases in world oil production comes at the expense of a near doubling, permanently, of real oil prices over the coming decade," argues the report, entitled The Future of Oil: Geology v Technology.
http://www.guardian.co.uk/business/2012/may/13/oil-price-doubling-decade...

Thanks for posting jh but a

Thanks for posting jh but a big duh to the IMF.  Of course oil will double in price in real terms, as will most everything else we need.  In real terms too.  When you have huge debts and print money to make yourself feel wealthy that's what happens to real prices.  They really go up as the value of money really goes down.

Aren't you confusing nominal

Aren't you confusing nominal and real prices?

Pritchard: One can only pray

Pritchard:
One can only pray that helicopter drops do not become necessary in the chilly winter of 2012-2013.
Beautifully put by the man who makes Bernard seem like a barrel of laughs
The rest of 2012 is looking VERY interesting

Matt in Auck - i was amused

Matt in Auck - i was amused to see what Pritchard had to say about Telegraph readers not being as keen as he is on "helicopter drops". Making it clear to the "non cash splashers" that they could be responsible for the next Depression.
 
It would seem to me that Pritchard likely spends most of his days in prayer. Im not sure our beloved bear Bernard H is as pious as Pritchard though.He sometimes has the look of a terrified heathen bear.

Bernard sounds to me like a

Bernard sounds to me like a good catholic Irish lad
Pritchard has a brilliantly dry Englishness about him doesn't he?
serious thought Hugh - NZ's PM seems to think that he can sit on his laurels and let the international market work its magic. It's not going to happen. If he had acted more urgently several years ago on undertaking the necessary NZ reform then things could have picked up by now regardless of the international shenanigans
If the China slowdown is significant, as it seems it might be, then NZ is truly going to regret not undertaking the reform that some of us have been harping on about for the past few years
scary times, but don't let any one say that readers here didn't warn and call for action
I thought Fran Sullivan's piece on Key in the weekend Herald was abysmal  in letting Key off the hook (key off the hook, ha ha). Vested interest complacent voices of yesterday - men / women like Sullivan, John Roughan, and the bank economists need to be retired to the pastures, they have no relevance 
thank God for the likes of Macrobusiness (and interest.co.nz)
 

Matt in Auck - thanks for

Matt in Auck - thanks for your comments, which I agree with.
 
The reality is that the Key led National Government went in to "kicking the can down the road" mode early 2009, soon after PM Key told the Wall Street Journal a heap of porkies, reported by Mary Kissel March 7, 2009 with "You can't spend your way out of the crisis" -
 
http://online.wsj.com/article/SB123638162497057661.html
 
Fran Sullivan of the Herald is obviously easily impressed. My sense is that history is going to be very harsh on Key - and deservedly so.
 
Hugh Pavletich
www.cantabriansunite.co.nz
www.PerformanceUrbanPlanning.org
 

Hugh, what happened to the

Hugh, what happened to the "regulatory reform" Key mentioned in that article?

O'SULLIVAN DRIVEL ON

O'SULLIVAN DRIVEL ON KEY
 
Matt in Auck - I have just read that Fran O'Sullivan Herald Opinion from the weekend.......
 
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10805337
 
People do need to read it - with the early 2009 Wall Street article above I have provided the hyperlink to.
 
Key is ambitious - for himself. As Oscar Wilde said "Ambition is the last refuge of the failure".
 
He missed his chance out of the starting blocks following the 2008 election, leaving New Zealand very vulnerable. He will be overwhelmed with events going forward.
 
To borrow a Paul Keating term, hr is nothing more than a "counter hopping bank clerk".
 
Fran O'Sullivan has bought no credit on herself writing that drivel.
 
Hugh Pavletich
www.cantabriansunite.co.nz
www.PerformanceUrbanPlanning.org
 

Agree, she's written drivel

Agree, she's written drivel but then Ive always thought that.
"What is on the TPP table from the US perspective is a "gold standard 21st century deal" which is more focused on complex economic integration issues which impact on national sovereignty  8><--------  And Key will have to deploy considerable salesmanship to make those tradeoffs (if the deal is done) palatable to New Zealanders."
In other words the US intends to pillage us senseless, they can see shooting doesnt work, no pay back, so new tactic....he should look to Greece to see how the ppl feel about being screwed over and how well we will take it...
It was too late in 2008, Key inherited 10~15 years of inertia and do nothing in case voters go elsewhere....he got in on a similar mandate to labour yet voters didnt want labour any more....funny that......
regards