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Wednesday's Top 10 with NZ Mint: How to deleverage less painfully; The Manning plan for NZ deleveraging; The amazing Grillini's next task; Why Sam Morgan should build a ticketing system for his dad; Dilbert

Posted in Opinion

Here's my Top 10 links from around the Internet at 11 am in association with NZ Mint.

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

See all previous Top 10s here.

My must read today is #1. Deleveraging is dragging on everything and everywhere. It pays to understand it.

1. Good deleveraging and bad deleveraging - This is a crucial concept for anyone to get their head around when trying to understand why economic growth is turning out to be lower for much longer.

When debt for any one sector of the economy is too high then it inevitably has to come down.

Either the debt numerator has to fall or the GDP-Income denominator has to rise.

It's how those numerators and denominators move that determines how ugly deleveraging becomes.

When they debt rises faster than income that's a problem. When debt rises and income falls that's a disaster.

When income rises faster than debt that's a good deleveraging, although if it happens through inflation then savers won't be happy.

Most New Zealanders won't have heard of Ray Dalio, but he's a legendary hedge fund investor in America.

Here's an excellent primer from Dalio on the different types of deleveraging. HT Roelof in yesterday's comment stream.

The deleveraging process reduces debt/income ratios. When debt burdens become too large, deleveragings must happen. These deleveragings can be well managed or badly managed. Some have been very ugly (causing great economic pain, social upheaval and sometimes wars, while failing to bring down the debt/income ratio), while others have been quite beautiful (causing orderly adjustments to healthy production-consumption balances in debt/income ratios).

In this study, we are going to review the mechanics of deleveragings by showing how a number of past deleveragings transpired in order to convey that some are ugly and some are beautiful. What you will see is that beautiful de leveragings are well balanced and ugly ones are badly imbalanced.

The differences between how deleveragings are resolved de pend on the amounts and paces of 1) debt reduction, 2) austerity, 3) transferring wealth fr om the haves to the have-nots and 4) debt monetization. What we are saying is that beautiful ones balance these well and ugly ones don’t and what we will show is how.

2. The Manning plan - Here's an idea for debt reduction in New Zealand that is completely different. It's from the Sustento Institute's Lowell Manning and it's called the Manning plan.

Your thoughts?

Here's the guts of it. The full paper well worth a read.

1. This plan offers a very low risk way to resolve the world debt crisis without sudden or radical change to the worl d financial system. It brings together a number of ideas such as Universal Basic Income (UBI), Debt Jubilee Income (DJI), and Quantitative Easing (Monetary Dialysis) that are already receiving some attention but cause concern to some policy makers when the y are considered in isolation. The plan can be implemented quickly and unilaterally.

2. The plan is based on specific forms of UBI and DJI structured to avoid inflation. The plan avoids most inflation because it can easily be adjusted so that incomes matc h the physical and human resources available to the economy.

3. The amazing Grillini - Bloomberg writes here about Beppe Grillo's 5 Star Movement and it's phenomenal success in the Italian elections.

Regular readers of the Top 10 may recall I first highlighted the rise of the Amazing Beppe Grillo in May last year.

Grillo, who comes from Genoa, is the joker in the pack. He says left and right are redundant political concepts, and that Italian politicians are so rotten to the core that they need to “go home.” In their place should come his citizen politicians, who consult constantly with supporters and use Internet forums to discuss and decide policy. That may be all right for making decisions on garbage collection in Parma, where the mayor is from the Five Star Movement, but this kind of Internet democracy may not work to extricate Italy from under its debt mountain and create jobs. So what next?

To date, Grillo has said the Five Star Movement will stay out of government. That means the main parties of the left and right will need to form a grand coalition, or Italy will be ruled by an unstable minority government, or the electorate will be asked to choose again, as in Greece last year. For now, it is too early to say what will happen.

Another big question is how the citizen politicians of the Five Star Movement will react to their success. They are elected to parliament enthused and energized. They have said they will support policies they see as good, whoever is in government, and vote against ones they see as bad. In Milan, the Grillini described the way they made decisions to me as “politics by crowd funding.”

4. A task for Sam and Gareth Morgan - Watching the excellent Blues vs Hurricanes match at the Caketin on television over the weekend (despite living in Wellington) I got to wondering why there were just 10,000 people there. There used to be 30,000 regularly there in the early 2000s for such matches.

So I thought why don't I go to the next game vs The Crusaders So I eventually bounced through from the hurricanes.co.nz site to Ticketek to see how much it would cost.

The site said there were seats from NZ$10 each in the family zone, but I couldn't for the life of me work out how to select them. Ticketek pre-selected premium covered seats for me and a child. The total cost was NZ$87.21, including NZ$5.50 (!) for delivery (!) of an eZyticket and NZ$1.96 in credit card fees. Sorry that's just too much. I could buy a return flight to Auckland for that.

So why doesn't the Wellington Stadium set up an airline-style yield management system to ensure it fills the stadium every time? It would look much better on television, there are few marginal costs for fresh punters and a full stadium might actually generate some marginal revenues from hotdog and beer sales (though not from me anymore!).

It seems like a perfect situation for an economic solution where the price changes to create an equilibrium. It works for airlines, so why can't it work for stadiums or for any venue for that matter.

I tweeted this question and got some interesting responses back. One follower pointed me to this excellent Wired article from Steve Knopper on 'Why everyone hates Ticketmaster but no one can take them down.'

It turns out Ticketmaster pays the venues a fee for the exclusive right to sell tickets. They essentially split some of the egregious fees they charge and pass them back to the venue. I don't know if Ticketek do this for the Wellington stadium. This seems to be the roadblock to a decent yield management system.

So why doesn't Wellington (or that matter all the other rugby/cricket stadiums/concert venues)  build its own ticketing system to fill these stadiums and maximise revenues using the magic of price to match supply with demand.

It turns out it's hard and Ticketek/Ticketmaster have a stranglehold on the market. What's needed is an excellent and reliable online transaction platform that doesn't go down when a million people turn up to buy 50,000 U2 tickets one morning.

That got me thinking. Who really needs to fill the Wellington stadium for Hurricanes and Phoenix games? Gareth Morgan is one of the owners of both teams.

Who would be able to build a brilliant and reliable online ticketing platform in New Zealand? His son Sam Morgan.

Gareth needs to ask Sam to build him one, I reckon. I'm being a bit cheeky, but why not? New Zealand is in a strange place that some of the biggest firms seem to ignore. We often build our own things online and the big guys (like E-bay and Amazon) seem to not notice or respond. That's the story of TradeMe.

Go for it Sam and Gareth. I'd like to see full stadiums and pay NZ$20 to take my daughter to a Canes game. ;) You can have the idea for free! It might even make some money.

Here's an example of how some smart operators are taking on Ticketmaster in America.

For all its clout, Ticketmaster has two major problems. Most obviously, it gouges ticket buyers. But less talked about is its lack of flexibility. With an old codebase, a huge customer roster, and a long-established way of doing things, Ticketmaster is notoriously slow to innovate. Its new CEO, Nathan Hubbard, points out that his company is starting to add features like interactive seat maps, but even he acknowledges that it “can’t turn on a dime like a startup.”

Virtually all the new ticketing startups aim to lower service fees to fans. But because this isn’t necessarily important to venues—in fact, it may run counter to their interests—the new guys must focus on Ticketmaster’s second weakness: its inability to innovate. And this is just what they are doing—to the delight of people in the industry like Mike Tomon, 32-year-old vice president of sales and service for the Cleveland Cavaliers.

In October 2009, the Cavaliers ditched Ticketmaster in favor of Veritix’s Flash Seats. The service is unique in that it allows fans to buy tickets online and transfer them to anybody else via email, even reselling them in an official online marketplace designed to compete with StubHub and eBay. Every time a ticket changes hands, Flash Seats tracks the change and allows Tomon and his sales staff to monitor the pricing.

The information this generates can be useful. When they analyzed last season’s Flash Seat numbers, for example, Tomon and his staff learned that fans sitting in rows one through five of the end zones were reselling their tickets for considerably more than those in rows six through 15. The Cavs’ response was quick: Increase prices for the first five rows and thus beef up revenue. “The depth of the data will absolutely make your head spin,” Tomon says.

5. The pain in Spain - Here's Reuters analysing just how big the problems within Spain's banking system and mortgage market are. Again, the story is all about how to deleverage in the least painful way. That is the challenge for the developed world at the moment.

For more than a century, Spanish law has determined that if a person borrows money to buy a home, they can only be freed of the debt when it is repaid. Even in death, the debt is not canceled. As the country enters another year of recession, calls are mounting for the system to be relaxed. But the banks worry this would damage their access to funds.

Take Francisco Lema, an unemployed 36-year-old builder, who dropped off his 8-year-old daughter at school on February 8 and returned to the family's rented fourth-floor flat in the Andalusian city of Cordoba.

The house he built himself had been repossessed, leaving a debt of 22,000 euros ($29,000) on the mortgage he took out to cover building materials, said family friend Maria Jose Vadillo, an activist for Stop Evictions Cordoba, a pressure group. His parents had stood guarantor for part of the loan. Now he was struggling with the repayments, said Rafael Blazquez, another activist with the same group. His wife, who was out, returned home to find his body on the street, covered with a sheet.

6. Yay! - French fund manager and economist Charles Gave writes at GaveKal.com that the Italian election result is perhaps the best political news since the fall of the Berlin Wall.

Italian electors’ rejection of Brussels-imposed economic diktat is an extraordinarily important moment in the history of modern Europe—perhaps the best political news since the fall of the Berlin Wall. Given the power of unelected technocrats, it is easy to forget that sovereignty in Europe still resides with the nation state as expressed through elections.

The problem for those unelected officials who conspired to capture the political system—think Jacques Delors, Jean Claude Trichet or Mario Monti—is the obvious failure of their great project. For the first time a majority of electors has decisively voted against the euro and rejected policies imposed by technocrats.

7. Send in the clowns - Waymad suggested it on 90@9 so here it is. Judy Collins singing about clowns on The Muppets.

Italian politics is the best.

8. 'Lo Spread' - American television news stations often have the ticker for the Dow or the S&P 500 running constantly across the screen.

Joe Wiesenthal at BusinessInsider points out Italians follow 'Lo Spread', the spread between Italian and German bond yields.

I learned about the significance of this number within a few minutes of landing in Milan last week, when I met a group of bankers, who referred constantly to it.

Italy has a staggering debt load, and it pays right now about 4.5% of its GDP every year to interest payments on the debt. Reducing its borrowing costs, potentially, could free up a lot of cash domestically.

Furthermore, since the wide spread is seen as a reflection of Italy's semi-functional government, the daily changes in the spread are a constant referendum on government. As Mario Monti engaged in reforms throughout 2012, and the spread came down. people saw this as a sign of competence, and Italy getting its act together. The surging spread today is seen as a reflection of the clown show that just took place.

9. A right good grilling - New Senator Elizabeth Warren gave Ben Bernanke a right good grilling over too big to fail banks yesterday. Finally.

I hope she runs for President.

"My question Mr. Chairman is, until we do, should those biggest financial institutions be paying the American tax payer that $83 billion subsidy they're getting."

Bernanke responded that those subsidies are coming from the market's expectation that the government will bail out banks, when it reality, the government has figured out a way to wind them down. He also added that the government wiped out the shareholders at AIG.

To which Warren countered, "excuse me Mr. Chairman but you did not wipe out the shareholders at the big banks... Whatever you say, Mr. Chairman, $83 billion says there will be a bailout for financial institutions."

10. Totally Jon Stewart on The Sequester 2013: Prelude to the return of the barter system.

 

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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10 Comments

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Hugh Pavletich

#1 and #2.  Bernard.  Where

#1 and #2.  Bernard.  Where do you find these dweebs.  The way to deal with debt is to have a plan to repay it when you borrow it.  or.  Don't borrow it in the first place.
Any alternative approach is the same as those finance company criminals starting up in the 90's.  Drive a Ferrari while some little old ladies term deposit goes west.

#4.  Ticketmaster.  Great

#4.  Ticketmaster.  Great thinking Bernard.  Actually very good.   And it's good to see business discussion in place of the usual mindless economic blah. 

Some basic economics

Some basic economics explained: Credit Creation and its Contribution to Financial Crises -
http://www.er.ethz.ch/publications/MAS_Thesis_Marina_Stoop_2010_final.pdf
 
 

Great Clown/Muppets video...

Great Clown/Muppets video...

Wonder how long before the

Wonder how long before the incipient drought conditions start knocking the strength of the NZ$? Couple more weeks without rain (and it is looking like that) and Northland wont be the only area formally declared as in drought.

  From the Herald: New

 
From the Herald:
New Zealand recorded a trade deficit in January, reflecting a larger-than-expected decline in exports led by dairy products, while imports rose.
The deficit was $305 million last month, for an annual trade gap of $1.3 billion,according to Statistics New Zealand. That compares to the forecast in a Reuters survey of a $100 million surplus.
Oops
 

#4 - those attendance numbers

#4 - those attendance numbers are indeed a shocker. Surely one can just turn up at the stadium on the day of the game and purchase a door sale of the $10 family stand seating?  Granted there might be a wait in line but the more folks who avoid the online monoplist the better. Consumers have power. - we're just not very good at collectively exercising it to our advantage yet.