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Monday's Top 10 with NZ Mint: ANZ CEO wants dole cut; Macquarie Millionaries eye NZ PPP payouts; Australia's Chinese hard landing risks; Vietnamese meltdown; NZ farmland world's most expensive; Dilbert

Posted in Opinion

Here's my Top 10 links from around the Internet at 9.30 pm today in association with NZ Mint.

As always, we welcome your additions in the comments below or via email tobernard.hickey@interest.co.nz.

See all previous Top 10s here.

My must read today is #2 for those who want to understand what's really going on in China and what it means for us.

1. Not a good look - Yahoo reports ANZ CEO Mike Smith, who earns thousands of dollars a day, commented last week that Australians needed encouragement to work in the mines by cutting the dole...

Does he not have a sense of how this might look?

Australians are labouring under massive debts and banks are making record profits.

He and his fellow executives are making millions personally by borrowing money from offshore and lending it out to home owners. This is pushing up the value of the Australian dollar.

I sense some of the Australian bank CEOs are underestimating the grumpiness out there in the mortgage belts around Sydney and Melbourne.

Here's his comments.

"One of the issues you are going to have with the high dollar is global competitiveness," he said after speaking at _The West Australian's _Leadership Matters series. "How do you reduce that cost base? Surely one of the ways to do that is you put labour where it is needed, rather than fly-in, fly-out, or compromise as we do at the moment."

Mr Smith said talks with resource industry leaders had convinced him that welfare reform could deal with the two-speed nature of the economy.

"I think that is something we should consider," he said. "Instinctively, mobility in Australia feels low compared with, say, the US. In the US if you don't move, your house goes and you don't eat. So that is the difference. The welfare net (in Australia) is such that it doesn't provide an incentive for people to move."

2. Who gets hit if China lands hard - The Economist points out Australia gets hit, unless its currency falls....which is exactly what is not happening at the moment. HT Leith van Onselen at Macrobusiness

A hard landing would hobble South Korea and bring Taiwan’s growth to a shuddering halt. But growth in Brazil and Australia would hold up surprisingly well, perhaps because their currencies would fall, absorbing some of the shock.

3. But wait.... And Leith makes some interesting observations about a Chinese slowdown and Australia's long term growth prospects:

However, McKinsey warned that the income gains enjoyed from the mining boom were only temporary, and that Australia could experience little or no income growth over the next seven years if: 1) the terms-of-trade trended back towards its long-run average; 2) only two-thirds of advanced resource projects and one-third of planned projects come to fruition; and 3) there is no improvement in productivity growth.

Finally, let’s not forget that the sharp rise in commodity prices has also underpinned government budgets, which have reaped the benefit of rising personal and company taxes, as well as resource rent taxes. Some of this extra taxation revenue has been re-distributed to households via tax cuts and welfare payments, thereby further inflating disposable incomes. Should commodity prices continue to fall, households could face the prospect of rising taxes and lower benefits as cash-strapped governments attempt to plug fiscal holes, and pay the costs of an ageing population.

4. Get a move on - Reuters' Nick Edwards reports on the growing political pressures in China. The quote from Andy Xie is a cracker.

China's policy chiefs have about two weeks left to decide about giving the economy a proper stimulative prod, or risk parading a new Communist Party leadership to the world just as growth falls below target for the first time in nearly four years.

Factory activity is already at a nine-month low, according to the latest manufacturing sector survey from HSBC, signaling that the official August numbers for industrial production and trade published in a fortnight will foreshadow third quarter economic growth falling below the government's 7.5 percent goal. That is a deeply unappealing prospect for the Party's top brass as GDP data is likely to be unveiled at roughly the same time as the new leadership in a once-a-decade power transition.

"They are sending out the message that they want to stimulate the economy, but in reality that is not going to happen," influential independent China economist, Andy Xie, told Reuters. "About the only tool left to them now is propaganda."

5. Down (and up) on the farm - The Economist has an excellent chart here on farm prices. It's boom time in America and Uganda. Not so much down here....

Although interestingly we have the most expensive farmland in the world...

6. What happens when the central banks print and then the banks won't lend ? - This is the central problem of the current strategy being employed by central banks and governments in the Northern Hemisphere.

They are relying on the conventional credit channels to get their freshly minted money out into the economy.

But the banks won't lend, and more worringly, the people (particularly households) won't borrow because either they are already too indebted, or they have too much cash already (the rich, the old and corporates).

This is why the likes of Steve Keen and Antatole Kaletsky are saying the printed money should be given directly to households to reduce their debt.

The other option is for the government to spend (or lend) it directly. We'll get there eventually, but it won't be pretty in the meantime.

Here's the results of the latest British attempt to get the banks to lend -- 'Funding for Lending'.

The Guardian reports it's already not working.

This month, to much fanfare, the Bank of England and Treasury launched the £80bn Funding for Lending scheme, to "incentivise banks and building societies to boost their lending to UK households and non-financial companies". The sceptics wondered if it would better the earlier Project Merlin, seen as having failed to channel cash to businesses and households.

They were right to be sceptical. Funding for Lending lets the banks borrow billions at just 0.25% interest to prod them to loosen the purse strings, especially for first-time buyers who face huge hurdles when finding loans. Yet the reverse seems to be happening. Santander has stunned the mortgage industry by raising its standard variable rate from 4.24% to 4.74%.

7. Outblinkingrageous - Radio NZ reports oromoters of Public Private Partnerships (PPPs) in New Zealand are suggesting the government should pay bidders for small projects to bid, even if they're unsuccessful...

These PPPs need to be put to death quickly. They were a disaster in Australia and Britain and make no sense when the government can borrow at 3.5%.

Duncan Olde, of Macquarie Capital New Zealand, which is arranging finance for the $900 million new men's prison at Wiri, also being built as a PPP, says the roading announcements are a definite boost.

He says there's good interest, particularly with projects of that scale, but it's likely to be more challenging for smaller projects.

Mr Olde says paying unsuccessful bidders' professional fees could attract more interest in smaller projects. With more bidders, he says, the bids would probably be more competitively priced and thus promote better value for money for the taxpayer.

8. Vietnamese problems - The NY Times reports on fears of a meltdown in Vietnam.

In Vietnam’s major cities, a once-booming property market has come crashing down. Hundreds of abandoned construction sites are the most obvious signs of a sickly economy.

A senior Vietnamese Communist Party official, speaking in the ornate drawing room of a French colonial building, compared the country’s economic problems to the market crash 15 years ago that flattened many economies in Asia.

“I can say this is the same as the crisis in Thailand in 1997,” said Hua Ngoc Thuan, the vice chairman of the People’s Committee of Ho Chi Minh City, the city’s top executive body. “Property investors pushed the prices so high. They bought for speculation — not for use.”

9. Caterpillar cuts digger production - Bloomberg reports in depth on the slump in Chinese construction.

Caterpillar Inc. (CAT), which gets 25 percent of sales in Asia, Komatsu Ltd. (6301) and Sany have all slashed output in the world’s biggest construction-equipment market this year as a demand slump caused by slower economic growth spreads from building to mining. Sales of large excavators, mainly used by miners, last month plunged the most since at least January 2009, contributing to the 15th straight decline in the overall market.

“The market is just getting worse,” said Wang Shuangming, an analyst with consultant China Construction Machinery Business Online. “It doesn’t matter if you’re a foreign or domestic producer -- everybody is sitting in the same boat.”

Total excavator sales fell 24 percent from a year earlier in July to 5,827, according to China Construction Machinery Association data cited by Nomura Holdings Inc. Sales have dropped year-on-year every month since May 2011 after a government clampdown on real estate triggered a building slowdown. Construction of new railways was also cut following a July 2011 train crash.

10. Totally Just Go For It - The Onion reports on a new type of credit card that talks and encourages users to 'Just go for it.'

Financial services giant Visa held a press event Tuesday to introduce "Visa Voice," a new line of talking credit cards that urges shoppers to just go ahead and buy it if that's what they really want. "Whenever you're near an item you're hesitant to purchase, Visa Voice offers words of encouragement, such as 'Come on, just go for it!' and 'Trust me—you're not gonna regret this,'" Visa president John Partridge said of the groundbreaking new payment product, which allows users to select between a calm, supportive female voice and a morally authoritative male voice.

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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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.

31 Comments

Christchurch Update....

Christchurch Update.... http://www.facebook.com/CantabriansUnite
 
 
(1)    Bureaucratically buggering the Central Area
 
 
(2)    Close Up build up – Tuesday – Stadiums & Convention Centres – including tonight’s “Land Grab” bureaucratic horror story.
View TV One Close Up Mondays “Land Grab” here –
 
 
http://tvnz.co.nz/close-up/christchurch-business-owners-square-off-government-video-5048520

 
 
(3)    Parker punting on 3rd term
 
 
(4)    The Blundering Bureaucratic Non Recovery
 

Note.....just posted (Tuesday morning).... http://www.facebook.com/CantabriansUnite
 
 
WHEN ARE YOU GOING TO ALLOW AFFORDABLE HOUSING TO BE BUILT GERRY ?

Marta Steeman reports in this mornings The Press ... HOUSING SQUEEZE HITS REBUILD ...

http://www.stuff.co.nz/the-press/business/7559333/Housing-squeeze-hits-rebuild

"A lack of accommodation is holding back the rebuild of Christchurch, as the two-year anniversary of the September earthquake nears."
 
 

Hugh don't

Hugh don't forget:
 
http://www.stuff.co.nz/the-press/news/christchurch-earthquake-2011/75586...
 
Christchurch doesn't need any pesky $8.9m office developments let's run those scumbag developers proposing such things out of town!  (My imaginings of the conversations taking place at CERA!).  Note that running them out of town will cost about $3m to buy the land.  Throw in the lost construction activity (tax take plus flow on effects) and this one property OUT OF 840 will cost the NZ Government about $7m (land cost plus GST on build cost plus lost PAYE and tax on wages and building products).  It will cost the economy much more than that with the flow of money through contractors, subcontractors etc.
 
Is the Government this stupid?  Unfortunately yes.
 
I have come to the conclusion that we are much safer with leaders who don't know what they are doing, rather than having leaders who think they know what they are doing.
 
One utter ballsup after another.  Heads need to roll.
 
Key is the man ultimately with whom responsibility lies.  It appears he is a charlatan, snake oil merchant who has no idea how to run a country, let alone deal with a crisis.

  we are much safer with

 
we are much safer with leaders who don't know what they are doing, rather than having leaders who think they know what they are doing.
such a great comment.
I think Key is a barrow boy, a great talker , can sell stuff but that is about it
 

Re: #2 - The Economist is

Re: #2 - The Economist is being pretty bullish there, predicting not even a soft landing for China.
 

Number 6   Incentivise Banks

Number 6
 
Incentivise Banks to Lend?
Why dont they incentivise borrowing instead? Jubilee Credits?

Re#7 this is definitely a

Re#7 this is definitely a case of ideology letting reality escape consideration. Plain out of the box indifferent sociopaths- we need a PPP just to lock them and their government sponsors up.

Look at what Key  'digs his

Look at what Key  'digs his heels' in over vs what he is not bothered about. The only time when he 'digs his heels' in is when it will work for international finance.
So PPPs and assest sales- go for it
Nothing else matters - does Int Finance  they care about NZ social issues no, neither does Key. He has one job and one boss that he works for and it isn't us, heck he doesn't even rate the pay we give him, he gives it away.

1. Banks and their lack of

1. Banks and their lack of social responsibility.
 
Thank you for your sound comments Bernard.
 
There is nothing "clever" about making money, based on poor quality business - loading unsuspecting young couples up with around 7 times their annual household income with mortgage debt, when it should be about 2.5 times.
 
Hugh Pavletich
 
 

To that CEO - I suggest he go

To that CEO - I suggest he go and work in the blasted mines himself or shut his trap, no doubt he is the recipient of totally over the odds amounts of money in his position. Talk about "let them eat cake"
Sorry but I am still seeing red after hearing Bernard this morning on the radio saying that Telecoms outgoing CEO received what amounted to $13million on his way out the door.  Unbelievable, then again, I guess not
 

Maybe this CEO could "import"

Maybe this CEO could "import" the South African striking  miners who can hardly survive on the pittance they are payed to enrich Fat Cats like ANZ's Mike Smith!
Mr Smith's ANZ Bank isn't exactly "smelling" like roses at the moment. Ask the farmers who got 'sucked ' into swaps.
Mr Smith and his ilk would be better employed as Second Hand Car Salesmen, then his lack of compassion and shark-like tendancies, would at least be easily spotted!
I would also suggest that Mr CEO Smith, should read  " The Spirit Level" by Richard Wilkinson and Kate Pickett , before he takes the "next kick at the financial /economic can" which has just about reached the end of the road as the result of attitudes like his.

The number of oil-based

The number of oil-based diggers in current existence, can probably see the remaining oil out between them.
 
That's what happens when you get to the top of the gaussian. 
 
Which relates back to the reluctance of banks to loan.

5. Obviously climate change

5. Obviously climate change with increasingly lack of fresh water (droughts) worldwide, push up meat and dairy products to luxury prices.

The thing on climate change

The thing on climate change is the increasing number of record events that can be expected....so Texas/Lousiana last year had record rains....lets washout the crops....
Comments Ive seen on Britain is its so wet this year that crop output could be seriously low...
etc etc.
I wonder where Phil Best is these days spouting about the US has so much land to feed ppl with......oh dear.
regards

You'd expect that an internal

You'd expect that an internal rate of return for farmland would be somewhere between 5 and 10%. I don't know what the average is, but I suspect that it is somewhere around 2-3%. LandCorp certainly doesn't do any better than that. Purchasers are either factoring in an expected improvement of commodity prices or some naive expectation of continued capital gains. It's all symptomatic of the cheap credit boom which has fuelled the property market. Pop! 

I dont think Landcorp even

I dont think Landcorp even does %1.

Isn't that the problem - with

Isn't that the problem - with land prices at this level there is no ROI to be made for our price taking ag industries. 
 

Return on equity was 9.4% in

Return on equity was 9.4% in 2010/11 after an expected return of 5.8%.  It is expected to be 6.4% 2011/12.

I dont approve of the way

I dont approve of the way they do their accounts.  

I didn't expect you would Aj

I didn't expect you would Aj ;-)

I found the June 30 2011

I found the June 30 2011 figures on the internet which was a profit of $42 million on a total asset base of $1.66 billion. That's a ROI of only 2.5%. I'd be curious to know what the 2012 numbers are.

# 5 I f you factor in

# 5 I f you factor in population density - UK-663 US-89 NZ-43 (pop/km2) it makes the Auckland housing market inflation look silly. (OK I know we're more efficient but are we that more efficient?)

#6 Check out Bank of Dave on

#6 Check out Bank of Dave on YouTube to see a real view of how broken modern banking has got and how ordinary people and common sence have been hijacked!

10. Im now getting monthly

10. Im now getting monthly reminders from my CC company reminding me that I have not taken them up on doubling my present limit...
ho hum...
regards
 
 

BNZ wants $100 to write a

BNZ wants $100 to write a letter confirming that our mortgage is dischagred so we can get it removed off the title.

Regarding (5) NZ farm land

Regarding (5) NZ farm land should be the most expensive as we are probably the most efficient producers of farm produce in the world. And as much as I thought we would be less moribund by regulation than our Aussie brothers, I was staggered to watch Sunday this week and learn of their ludicrous black market in milk.
 
And Bernard you'd push more of this state BS on us.

... sorry, the above was

... sorry, the above was supposed to read, 'more moribund' ...

NZ farmland is expensive -

NZ farmland is expensive - but this is not actually good for us, we are not the best farmers in the world, just quite good at it. Good farming practice is well understood and taught in many countries. Our land cannot do more than other well farmed land in other countries can do . So all we are left with is a banking sector taking more than its fair share of the returns from this land. They do this by allowing us to let foreigners who do not actually farm here to buy up land  and by allowing NZ farmers to bid up the price of land by offering greater and greater camounts of credit.
Result, over farming, imported peasant labour, a move to a purely extractive rather than sustainable farming sector.
Farming in NZ is in a mess, we just don't know it yet.
We will have a land tax in NZ as part of a change in emphasis in taxation in NZ. We need one, a land tax is much better than over taxing our efforts and our interactaions- the two things that our economy really needs more of.

Plan B: How do you see the

Plan B: How do you see the banks credit $ (Farm debt$) being shaken out of the structure, if as your thinking suggests the banks can't be trusted to be prudent with credit growth...
 - our thoughts as we have noted, we don't see the Oz banks rush to take a loan provision, and any way if the iron ore prices keeps going down 3,000 or 4,000 farm accounts will be the least of their worries.
 
We agree there are place with brilliant dirt, bury a horse in it stuff, not this thin waffer (and moving) that we have...