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Tuesday's Top 10 with NZ Mint: FT wonders if it's time to short NZ?; China's grumpy middle class; China's contracting workforce; Joseph Stiglitz on inequality; Nouriel Roubini on the 2013 outlook; Dilbert
Here's my Top 10 links from around the Internet at 10 am in association with NZ Mint.
As always, we welcome your additions in the comments below or via email to firstname.lastname@example.org.
Happy 2013 to all. My must read is #3 on the increasing middle class protests in China over smog and press freedoms. Something is brewing up there.
1. Time to short New Zealand? - FTAlphaville has picked up on Demographia's survey showing the worsening of housing affordability in New Zealand and how we're now less affordable than Australia.
FTAlphaville, which is one of the best financial blogs around, rightly picked up on Bill English's decision to write the foreword to the survey, which mused openly about the risk of another mid-2000s housing boom.
English is rightly on the warpath on this.
He has suggested the government could take land availability decisions off councils.
That would be a drastic move.
But something has to give. The big problem is Auckland.
What’s surprising here is the performance of New Zealand, which is now more unaffordable than Australia. That’s bound to stir up some trans-Tasman rivalry. Although at a more granular level, Australia can still boost some of the most expensive places in the world to live.
Time to short New Zealand then?
2. Inequality and slow growth - Nobel prize-winning economist Joseph Stiglitz has written a useful summary at the New York Times of the argument that increased income inequality is slowing economic growth.
Instead of pouring money into the banks, we could have tried rebuilding the economy from the bottom up. We could have enabled homeowners who were “underwater” — those who owe more money on their homes than the homes are worth — to get a fresh start, by writing down principal, in exchange for giving banks a share of the gains if and when home prices recovered.
We could have recognized that when young people are jobless, their skills atrophy. We could have made sure that every young person was either in school, in a training program or on a job. Instead, we let youth unemployment rise to twice the national average. The children of the rich can stay in college or attend graduate school, without accumulating enormous debt, or take unpaid internships to beef up their résumés. Not so for those in the middle and bottom. We are sowing the seeds of ever more inequality in the coming years.
3. China's increasingly grumpy middle class - The New York Times' Edward Wong writes here about growing calls in China for more transparency.
Since my last Top 10 we've seen an anti-censorship protest in Southern China and massive online outrage over stifling smog in Beijing.
A widening discontent was evident this month in the anticensorship street protests in the southern city of Guangzhou and in the online outrage that exploded over an extraordinary surge in air pollution in the north. Anger has also reached a boil over fears concerning hazardous tap water and over a factory spill of 39 tons of a toxic chemical in Shanxi Province that has led to panic in nearby cities.
For years, many China observers have asserted that the party's authoritarian system endures because ordinary Chinese buy into a grand bargain: the party guarantees economic growth, and in exchange the people do not question the way the party rules. Now, many whose lives improved under the boom are reneging on their end of the deal, and in ways more vocal than ever before. Their ranks include billionaires and students, movie stars and homemakers.
Few are advocating an overthrow of the party. Many just want the system to provide a more secure life. But in doing so, they are demanding something that challenges the very nature of the party-controlled state: transparency.
4. Show us the money - This story has flown under the radar in the last couple of weeks, but is shocking just the same. Caterpillar had to write off almost the entire value of a construction equipment company in China that it bought recently because of fraud.
At the time of the Caterpillar purchase, ERA Mining was listed in the Growth Enterprise Market (GEM) of the Hong Kong stock exchange, which is "designed to accommodate companies to which a higher investment risk may be attached," according to the offering circular filed by Caterpillar last year in Hong Kong.
The company was previously known as ERA Holdings Global Ltd. and provided "corporate secretarial services" before being acquired by Siwei in September 2010 through a reverse takeover.
Caterpillar's write-off could revive concerns over accounting scandals and corporate governance issues of Chinese companies voiced by investors including Muddy Waters founder Carson Block.
Reverse takeovers have been of particular concern, since most of the recent accounting scandals in the United States have come from small Chinese companies who went public via a reverse takeover, including China MediaExpress Holdings Inc. A Hong Kong arbitration panel on Wednesday ruled China MediaExpress was a "fraudulent enterprise."
5. Where is the power price deflation? - Meridian Energy has decided to mothball a project on the Waitaki because of flat power demand. I still can't work out why power prices for consumer have risen 5% in the last year while demand was flat and new supply was added from geothermal stations in the central North Island and new wind farms opened. (This replaces the Dubai sewage story, which is now out of date.)
6. The problem with British bankers - The Mail on Sunday has uncovered a dossier detailing the short termist, profit gouging approach of Barclays bank. One of the executives has resigned after trying to cover up (by shredding) the dossier.
The Mail on Sunday’s revelations come at an acutely embarrassing time for Barclays, as bosses try to regain public trust after a series of deeply damaging scandals.
The report which Mr Tinney suppressed paints a devastating picture of incompetence and arrogance at the bank, showing that executives:
- Pursued a ‘revenue at all costs’ strategy.
- Fostered a culture of fear and intimidation.
- Were ‘actively hostile’ to the idea of compliance with banking rules.
- Presided over a ‘broken culture’ where problems were ignored or buried.
- Allowed the business to spin ‘out of control’.
But Mr Tinney, 46, shredded the only hard copy and ensured that its contents were not entered into the Barclays computer system.
7. China's shrinking workforce - China's working age population has started falling, in part due to China's falling birth rate and its one child policy.
The danger for New Zealand comes as China's economic growth rate slows under the weight of this demographic slowdown and it is forced by financial constraints to shift its growth model from investment heavy to consumption heavy.
The question is, as ever, how long China’s economy can carry on with its investment-heavy, consumption-light, and heavily leveraged method of growth. And, how smoothly it can transition to whatever lies beyond that. We would not want to take bets on a time frame. Fitch Ratings however says it thinks China might be reaching some kind of limit:
The investment-led growth model is running into tightening constraints. The first constraint arises from the ability of the financial system to fund more capital spending in light of the existing scale of leverage and emergent pressure on bank liquidity. The second constraint is that still-higher investment, without a commensurate rise in the already-stratospheric savings rate, would see China running the risk of incurring a structural current account deficit.
As for Fitch’s first concern — the ability of the financial system — there may be answers to that in the ever-developing world of shadow finance.
8. 'Another year of mediocre growth' - This is the forecast from 'Dr Doom' Nouriel Roubini at Project Syndicate on the outlook for 2013. He's not postive... Well worth a read.
Painful deleveraging – less spending and more saving to reduce debt and leverage – remains ongoing in most advanced economies, which implies slow economic growth. But fiscal austerity will envelop most advanced economies this year, rather than just the eurozone periphery and the United Kingdom. Indeed, austerity is spreading to the core of the eurozone, the United States, and other advanced economies (with the exception of Japan).
Given synchronized fiscal retrenchment in most advanced economies, another year of mediocre growth cocould give way to outright contraction in some countries.
9. The currency wars of 2013 - Alan Kohler at BusinessSpectator writes about Japan's move over the Christmas/New Year break to launch all out money printing and government spending in the latest round of the currency wars.
Ambrose Evans-Pritchard of London’s Daily Telegraph points out that Japan’s new economic revolution is a “near copy” of its experiment in the 1930s under the then finance minister Takahashi Korekiyo. He launched a fiscal 'New Deal' before Franklin Roosevelt even became president, compelled the BoJ to monetise debt and devalued the yen by 60 per cent against the US dollar and 40 per cent on the trade weighted index.
Japan's textile, machinery, and chemical exports swept Asia, sparking a global trade war as Britain and India responded.
Last week the deputy chairman of Russia’s central bank, Alexei Ulyukayev, became the first to name the problem, saying: "We're on a threshold of a very serious, confrontational actions in the sphere that is known ... as currency wars.” He went on: "The recent decision by the new government of Japan regarding very protectionist monetary policy ... this is a course towards a sharp depreciation of the yen. Other colleagues from respected central banks and governments already pursue this policy. This is not a path towards global coordination but a separation."
10. Totally Clarke and Dawe - A resident from the North Pole has applied for Australian citizenship, it seems.
(Updated #5 to remove out of date Dubai sewage story).