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- Poll shows opposition to LVR limits 9
- Quake claimants win in court 8
Tuesday's Top 10 with NZ Mint: 'Civil servant is anxious, anxious, anxious!'; Beijing really big airline smoking lounge; Mario and the Bank of Monte Paschi; 'Don't blame the robots; 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.
My must read today is #9 on the debate about the rise of the robots. Dean Baker makes a fascinating point about how the medical and legal sectors are yet to be opened up to globalisation.
1. 'Civil servant is anxious, anxious, anxious'! - This is one line you're not likely to see in a real estate ad in New Zealand.
I certaintly haven't seen one in my hunt for a house in Wellington.
But I am looking. ;)
FT's BeyondBrics blog reports on a surge of panic selling by surprisingly rich civil servants in Beijing who don't want to be caught owning too much.
There's been a wave of publicity in China about bureaucrats holding more than one identity card or Hukou, which allows them to buy multiple houses.
It's politically explosive. It also helps explain why there has been an exodus of capital and funds from China into boltholes all around the world (including New Zealand) as the officials look to ferret their money away before new President Xi Jingping brings his anti-corruption drive to an apartment block near them.
Beyondbrics does point out that it might just be clever marketing.
China’s crackdown on corruption has spawned a new trend in the country’s real estate market: panic sale advertising.
“Civil servant is anxious, anxious, anxious!” screams one ad (pictured below). “Landlord faces asset investigation, desperate to sell” is the hook for another. A third reads: “Official anxious to dump property. First come first served. Five units in all. All are excellent. Absolutely great value.
There certainly is a patina of plausibility to the ads. A series of Chinese officials have been exposed in recent weeks for owning property portfolios worth many times their public salaries. An intensifying campaign against corruption led by Xi Jinping, the country’s new leader, will undoubtedly flush out more wrongdoers. As Xi put it rather lyrically, he will target both “tigers and flies” – that is, high-ranking leaders and middling bureaucrats.No wonder, then, that officials might be feeling a tad skittish and looking to divest their assets. Property deeds have been one of the leading currencies of bribery in China over the past decade. Dirty officials have amassed vast portfolios of homes across the country
2. A QE dissenter - John B Taylor, the guy who invented the Taylor Rule for inflation targeting for central banks, has argued against the US Federal Reserve's endless Quantitative Easing policy and its policy to keep the base rate at zero % for years to come.
He writes in the WSJ it is actually having the opposite effect to that intended.
Consider the "forward guidance" policy of saying that the short-term rate will be near zero for several years into the future. The purpose of this guidance is to keep longer-term interest rates down and thus encourage more borrowing. A lower future short-term interest rate reduces long-term rates today because portfolio managers can, in a form of arbitrage, easily adjust their portfolio mix between long-term bonds and a sequence of short-term bonds.
So if investors are told by the Fed that the short-term rate is going to be close to zero in the future, then they will bid down the yield on the long-term bond. The forward guidance keeps the long-term rate low and tends to prevent it from rising. Effectively the Fed is imposing an interest-rate ceiling on the longer-term market by saying it will keep the short rate unusually low.
The perverse effect comes when this ceiling is below what would be the equilibrium between borrowers and lenders who normally participate in that market. While borrowers might like a near-zero rate, there is little incentive for lenders to extend credit at that rate.
This is much like the effect of a price ceiling in a rental market where landlords reduce the supply of rental housing. Here lenders supply less credit at the lower rate. The decline in credit availability reduces aggregate demand, which tends to increase unemployment, a classic unintended consequence of the policy.
3. Just like an airline smoking lounge - Bloomberg has a great chart showing just how polluted the air in Beijing has been this year.
The chart of the day shows Beijing’s daily peak and average concentrations of PM2.5, the airborne particulate matter that raises risks for lung and heart diseases, as measured by the U.S. Embassy. The 2013 daily average was 194 micrograms per cubic meter, with an intraday peak of 886 on Jan. 12, the data show. By contrast, PM2.5 levels averaged 166.6 in 16 airport smoking lounges in the U.S., said a 2012 study by the Centers for Disease Control and Prevention in Atlanta. Levels exceeded 1,000 in Fairbanks, Alaska during a 2004 wildfire that engulfed 6.6 million acres, the state’s website says.
4. The dangers in China's shadows - Chinaeconomicreview reports on the risks lurking inside China's shadow banking system.
Almost every major economy – the US, Japan, many European nations – has encountered an economic crash at some point in its development. In many of these crises, regulators and financiers willfully overlooked the growing risks to the economy until a crash was unavoidable. China, yet to have its first modern crisis, may have the rare benefit of an advance warning.
In December, Huaxia Bank revealed that a US$22.5 million investment product, which it helped many of its customers invest in, had defaulted. Protestors who had lost money took to the steps of Huaxia’s Shanghai branch, demanding compensation. A third-party guarantor ultimately repaid the principal on the investments, although, at press time, the government was continuing to investigate whether any crimes were committed. The Huaxia incident was the most prominent case of a wealth management product (WMP) – a high yield, obscurely structured means of investment that has grown increasingly popular since 2010 – defaulting to date.
That event highlighted the systemic risk posed by WMPs should defaults become a common occurrence, a concern among many analysts. Banks frequently use these off-balance-sheet products to finance some of China’s riskiest borrowers, including property developers and pawn shops, which are frequently ineligible for traditional bank loans.
5. Woeful Australian factory output - Fresh Purchasing Manager Index figures for Australia over the weekend showed its manufacturing sector is in an awful state thanks to the high Australian dollar.
Interesting to see the New Zealand dollar hit an 18 month high over the weekend of 81 Australian cents.
The mining-driven economy got slammed as soon as its emerging market export partners like China slowed down.
And despite a pick up in China, Australia has yet to see the benefits.
It's "a credit bubble built on a commodity market built on an even bigger Chinese credit bubble," wrote strategist Dylan Grice in a note last year.
6. Mario and the Bank of Monte Paschi - The scandal around Italy's Bank of Monte Paschi is threatening to engulf European Central Bank President Mario Draghi and raises some fascinating questions about whether Europe will really be able to create a single banking regulator able to shut down banks in France, Italy, Spain and Germany.
Bloomberg's Jonathan Weill mulls it over:
Skip ahead and envision a world in which the ECB was already responsible for supervision and had been legally anointed the euro area’s single resolution authority. Let’s also assume for argument’s sake that the ECB wanted to close Monte Paschi, and that Italy’s political leaders disagreed, as they very well might. It’s simply inconceivable that ECB officials would walk into Monte Paschi’s Siena headquarters, seize the bank with all its branches and shut it over Italy’s objections. And Monte Paschi isn’t even all that big a bank by European standards.
There isn’t a country in Europe that has shown itself willing to lose one of its national champion banks. Can you picture French politicians allowing the ECB to have the final say on closing a huge French bank such as Credit Agricole SA, which has 1.9 trillion euros of assets? Would Germany’s government really defer to the ECB on euthanizing Deutsche Bank, with 2 trillion euros of assets? No way.
What if it looks like a property bubble and squeaks like a property bubble?
International Financing Review asks if China's property market looks like a bubble.
Moody's is confident it's not...now when was the last time Moody's was confident its AAA rated mortgage bonds were safe...ah, that's right, just before the bubble burst in America...
Divergent views are emerging over whether there is a bubble building in the Chinese property sector, which has produced a string of aggressive high-yield issues this year, the most recent of which was Greentown’s conveniently successful US$400m bond this week.
The recent hot flow of money into Chinese high-yield property bonds, much of it from private banks unable to earn a decent return elsewhere, had the look and feel of a sector overheating, and many have indeed traded down in secondary.
If it looks like a bubble and inflates like a bubble, then it will ultimately pop like a bubble.
Not everyone thinks there is a bubble, however. Rating agency Moody’s certainly does not and has said in a report that the recent spate of bond issuance has actually shored up the sector’s liquidity and generally extended many issuers’ maturity profiles. Add in the sector’s stronger-than-forecast sales growth, and the agency believes the Chinese property sector actually has an improved credit profile.
8. A legitimacy deficit - The annual World Economic Forum bunfight in Davos can throw up some interesting papers. Here's one on the vulnerability of elites sighted by Zerohedge.
Leaders of all kinds are becoming more vulnerable to their constituents, generating more reactive and short-term governance. Whether one looks at the dismal approval ratings of the U.S. Congress or the impact that more open flows of information is having on the Chinese ruling elite, it is clear that people are becoming more and more uninspiredby their governments.
When it comes to unemployment, the widening disparity of wealth, or environmental degradation,highly complex or even intractable issues set politicians up for failure in the eyes of their constituents. Underperformance erodes elites’ legitimacy, making it that much harder for them to lead effectively. States captured by corruption or special interests, or that exhibit a lack of transparency, growing disparity of wealth, or a perceived indifference to the lives of the citizenry, will increasingly fallvictim to this ‘legitimacy deficit.’
9. 'Don't blame the robots' - The idea that rising inequality in the developed world can be blamed on the rise of the robots is gaining momentum. But Dean Banker at CEPR has a few other ideas.
He makes a good point that globalisation has opened up the jobs of manufacturing workers to competition, but not those in the medical and legal sectors.
But if technology and its demand for high skills are not to blame for the rise in inequality, then we have to look elsewhere for the culprits. One obvious source is globalization. Millions of manufacturing workers have lost their jobs to low-paid workers in Mexico, China and elsewhere. Some argue that this is a natural, inevitable market process. But it is not. It is a policy choice.
Yes, there are tens of millions of people in the developing world who can perform the same tasks as our manufacturing workers for a fraction of the pay. But there are also millions of people in the developing world who could perform the same tasks as our doctors, dentists, and lawyers -- for a similar fraction of the pay. Our trade policy has been explicitly designed to put our manufacturing workers in direct competition with lower paid counterparts in the developing world. By contrast, our trade policy has largely left in place or even increased barriers that prevent workers in the developing world's most highly paid professions from competing with their American counterparts.
Other policies have contributed to growing inequality. De-unionization and the deregulation of major industries like communications and transportation have also played important roles in eliminating middle class jobs. It is arguably true that this policy fostered growth. But then wouldn't deregulation of the medical and legal professions also foster growth?
Other policies have clearly had the effect of redistributing income upward. The explosion of the financial sector, fostered by both deregulation and a now explicit "too big to fail" policy, has led to large fortunes for many. Greatly increased patent and copyright protection has also tended to enrich a fairly small number of people well-positioned to get the benefits of these interventions.
In short, there is a strong case to be made that we got inequality by design. We shouldn't blame the robots.
10. Totally Jon Stewart on the gun rights discussion. Gun rights advocates want the guns to protect them against too much government or no government at all.