Here's my Top 10 links from around the Internet at 10 am today 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 is #8 on how stock and property markets are rallying on the back of printed money, rather than real economic growth.
1. Really? - The OECD has just published a report on the Global Financial Crisis, poverty and inequality that says New Zealand household market income (which includes wages, salaries, self employed income but not government transfers such as Working For Families) was the second worst performing in the OECD between 2007 and 2010 behind Iceland.
The drop in New Zealand household market incomes was the same as for Greece.
The chart below shows the biggest drop was for self-employed income.
This number is harder to track and doesn't necessarily show up so easily in unemployment or income statistics.
Certainly those working for themselves in that precarious world between full on unemployment and a full job have had a tough time.
But the OECD's measures surprised me. It does however point out that transfer payments, such as the unemployment benefit, pensions and the likes of Working for Families helped soften the blow a lot.
Here's the OECD report and the chart below:
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I'm glad I don't live there any more or have any money stuck there in either a bank account or a house. HT Andyh in Friday's Top 10.
Mr Osborne may think he can create recovery by driving up house prices, thus making Brits feel richer and encouraging them to save less, borrow more and spend.
The Bank of England may think it can create recovery by trying to force up asset prices, including equities. But until wages rise, growth will have a bubble feel about it.
Wages can only really rise in a sustainable way once productivity improves, but that improvement remains elusive.
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3. The drums are beating - A rash of commentary over the weekend looked at what can or should be done about foreign demand and cash pushing up house prices in Auckland.
Tony Alexander's survey of estate agents suggests about 8% of buyers at the moment are from offshore with low proportion being non resident buyers.
The Greens are proposing a Hong Kong-style 15% tax on non-resident purchasers of residential property and Alexander is calling for an Australian-style application process with limits to 'off-the-plan' purchases.
Alexander told ONE News: "The number of Chinese migrating to New Zealand is rising, their desire to get assets outside of China is rising, we'll see more foreign purchasing and because I believe New Zealand house prices for domestic reasons are going to go higher I do think we need a foreign house purchase policy."
Alexander is calling on the Government to adopt Australia's foreign ownership model, which dictates that anyone without permanent residency must apply to buy property and can only purchase 'off the plan' new builds or build their own houses.
This way they contribute to housing stock and do not put pressure on existing stock, Alexander said. They must also sell property if they move overseas again.
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4. Our national shame - The Pike River tragedy and an ongoing series of four-wheeler and forestry accidents is forcing people to confront New Zealand's disastrous workplace safety situation.
Dave Armstrong has written a very strong editorial here at The Press:
Though our workplace safety record is three times as bad as Britain's and twice as bad as Australia's, it hardly rates a mention.
Kiwis were justifiably outraged last week when they heard a story about a "gold elite" passenger on an Air New Zealand flight refusing to give up her prime seat to a wheelchair-bound passenger. I was almost as outraged as I had been a few weeks previously when I heard about a certain lowly ranked list MP allegedly threatening to get his boss, the prime minister, to fire a waiter if a drink wasn't immediately served.
So why, when a far more serious incident occurred - a building contractor tragically killed in a workplace accident in Napier - was there so little media coverage or public outrage?
5. China's aluminium surplus - This is something for Tiwai Pt watchers to watch. The explosion of aluminium smelting capacity in China over the last decade looks to have been the death knell for Rio Tinto in its thinking about keeping smelters such as Tiwai Pt.
Here's Bloomberg on the size of the Chinese aluminium surplus.
Chinese aluminum capacity and production have more than doubled since 2005, according to Morgan Stanley. The aluminum market had an estimated glut of 900,000 tons last year, the sixth consecutive year of surplus and will be oversupplied until at least 2018, according to the bank.
About one-third of Chinese producers are losing money at current Shanghai prices, according to London-based CRU. Production equaling 4.6 million tons in the world excluding China is currently operating at a loss, according to Georgiou. Prices have failed to spur aluminum producers to permanently curtail supply, Morgan Stanley said in a report last month.Production cuts announced by aluminum producers are “still not enough,” Oleg Mukhamedshin, deputy chief executive officer of Moscow-based United Co. Rusal, the world’s largest aluminum producer, said at a CRU conference in London on May 15.
“Why is this production still operational?” Georgiou said at the conference. “Some of them have a strong importance to their domestic economies and it’s the reluctance of governments to allow these smelters to close.”
6. Chinese local government debt problems? - The massive spike in lending to Chinese local governments in recent years worries some. Now SCMP reports one Chinese city, Dongguan, has starting restricting public services because it can't repay its debts.
In a telling sign of the mainland's mounting local government debt crisis, some towns in Dongguan - one of the richest cities - are being forced to suspend free public services and infrastructure projects.
In February, Shipai town terminated the free bus services that it introduced with much fanfare about two years ago. Then in March, the township government said it was reviewing a policy of providing free education to all residents aged below 25 because the government's coffers had dried up.
The town of Zhangmutou - dubbed little Hong Kong because of its popularity as an investment and holiday destination - has scrapped an ambitious plan to build a 100-million yuan (HK$126.4 million) recreational park, leaving a large chunk of empty land in the town centre. Many local township authorities in Dongguan are struggling to pay the salaries of their employees.
7. Here come the reforms - The reform plan from China's new leadership has been surfacing in a series of reports in the last couple of weeks. Here's more from Reuters on the scale of the 'sweeping' reforms.
Chinese President Xi Jinping has taken charge of drawing up ambitious reform plans to revitalize the economy, sources close to the government said, shunning policy stimulus for fear it could worsen local government debt and inflate property prices.
A consensus had been reached among top leaders that reforms would be the only way to put the world's second-largest economy on a more sustainable footing, said the sources, who are familiar with the plans and Xi's involvement.
8. The emperor is scantily clad - The FT reports with a shake of its head how US and other stock and property markets are surging ahead thanks to easy money rather than real economic growth.
This is an equity market that rallies most trading days and shrugs aside disappointing economic news with limited price corrections. A case in point was the modest pullback on Thursday after a series of weak data, led by monthly inflation easing the most in four years. That pullback was yet another blip as the market closed at a record high on Friday.
The performance of equities is truly eye opening, and it’s a rally being fuelled by the Federal Reserve’s easy money policy of quantitative easing, all the while downplaying the fundamental and technical basics that ultimately must underpin financial markets.
An uneven recovery in the economy and modest sales growth at the corporate level are being brushed aside for now by the power of central bank liquidity. The equity rally has also occurred without significant fund flows into the market that would confirm investors are back in a big way, let alone justify the big rise in prices since January.
The problem with stepping back from the QE pedal is that it would focus attention on a sub-par performance for the economy that is hardly growing at a pace to justify the current equity market rally. Ultimately, easy money is the driver of the equity rally, and for investors contemplating their next move it really all comes down to the Fed. In the current momentum driven market we are on the cusp of partying like its 1999, all the while flirting with the danger that when the music stops the consequences of having bought anywhere near the top are likely to be brutal and swift.
9. Where's the demand growth? - The FT reports on a 'three speed' global economy and a lack of demand growth from consumers and businesses.
Falling commodity prices and a rising dollar show the broad picture: the global outlook is weakening a little and becoming more dependent on the US. For every country putting out good news, such as Japan, there are weaker data elsewhere – for example in China. It is a global economy that lacks a strong source of demand growth. While that is so, it will remain sensitive to policy moves – especially to the US Federal Reserve and when it decides to slow the pace of its third, $85bn-a-month round of quantitative easing.
10. Totally Jon Stewart and Larry Wilmore on Barack Obama.
30 Comments
#3 - The drums are beating?
Say what? Strewth Bernard, where've you bin? this has been doing the rounds for so long round here the drum-skins are worn out. Must be the new drummers. Russel Norman and Tony Alexander
Russel Norman suggests 15% surcharge on foreign house buyers
http://www.nbr.co.nz/node/140340#comments
Comment #17 by Anonymous
Anyone who doubts this is necessary need only attend any central Auckland auction or open home, to see for themselves. My non-resident neighbour owns all 6 surrounding houses, finances through international banks, intentionally contracts renovation work exclusively to those from her own country of origin, and has sent home millions of untaxed dollars made through capital gains over the last 3 years. How exactly is this 'international investor' contributing to our economy?
So much for LVR's and OBR's
Hey iconoclast , it's a national trait to be kind to strangers.
Don't we submit and pay tribute to our aussie banks' parents to the tune of NZD 2.5 billion to NZD 3.0 billion year and rising?
Don't we pay 66.4% of our government debt service costs to foreigners?
And that's just the tip of the iceberg - shedding the light of day on foreign owned corporate transfer pricing scams would make your eyes water?
Cripes, we even do it to each other. Read more
Stephen Hulme: Banks. Collection Plates. I've said it before. At least 3 times. I'll keep repeating it. I would get Hugo Chavez to do a Lazarus, get him down here and fix the banks. In the meantime until he freshens up and gets down here I would charge each bank an annual licence fee of $½ billion to hang out their shingles. Cop it sweet or leave.
Where's the emperical evidence of non- resident foreigners buying up Aucklands propeties and pumping up the prices ?
Surely someone can extract these statistics from the Land Registry
It may be foreigners buying the houses , but I am unconvicned its NON -RESIDENT foreigners who are a problem .
It would be grossly unfair to stop people with NZ Residence status from buying a home , especially given we encourage them to come here from China and India
I am led to understand NZIS actually have offices in India and China to encourage migrants to apply to live here.
#1 is merely the surfacing of the trend which has been bubbling away for three decades: the sober fact that the nature of work - all work - is moving up the bell curve in terms of the attributes of worker required. As by definition, this leaves fewer and fewer 'capable' workers to do the heavy lifting, and more and more 'incapable' workers trailing in the wake, it effectively condemns a majority of the workforce in perpetual 'left-behind ' or at the very best, 'permanent catch-up' mode. Small wonder then that real wages have, according to some, never surpassed 1973 levels.
And the 'nature of work' is not something that Gubmints, institutions or unions/collectives can do much about, short of a China-type Great Leap Forward. Which turned out spiffingly well in terms of arresting population growth, and gave everyone lots to do while they starved to death. And, of course, in future the Soylent Green approach (an missed opportunity by Mao, in retrospect, but then a dictator can't think of Everything, especially while them Dance Troopettes need some attention) will be able to be implemented most efficiently. By the elite, naturally - can't have the plebs too close....
As a partial antidote to all of the above, perhaps 'wantology' is the answer: emotional services....
#1 A huge drop in self employment income in New Zealand. Sounds correct. We do have a war on small business going on. (Or any local enterprise with less than a thousand employees it seems like) and promotion of the interests of large, non productive monopolies who prosper by stranglehold. Banks, telecoms and such, who are increasingly owned outside New Zealand.
And outfits like Business New Zealand promote the interests of the very large, eg Power Companies over those of the SMEs, including farmers. I went and looked it out and discovered I paid a small part of Phil O'Reilly's salary. What is wrong with the place.
This article provides supportive anecdotal evidence.
People struggling to repay loans are falling outside the reach of dispute resolution schemes, making it harder to know if hardship is decreasing, says a scheme manager.
Thirteen per cent of people who complained to the government-owned Financial Dispute Resolution services in the year to the end of June said they were having money trouble.
But the service is having to go "off piste" to deal with many of them because hardship isn't covered by the legal arrangements it has with financial service providers, says FDR manager Stuart Ayres.
BH - this will go down well with PDK and Eeyore.
I think Godzone is rather better placed, but the money shot applies here, too: it just alters the mix of resources needing to be plundered to Keep the Peace in South Auckland and Porirua:
Quote
“What if our financial wealth has been accumulated on the back of a delusion? What if political promises – even those made in good faith – can no longer be met? How should we cope with the subsequent disappointment?” he asks rhetorically.
His answers are uncomfortable ones. Promises will have to be broken and expectations lowered. Weak growth will mean less prosperity to go round. People will be stripped of their “entitlements”. An introverted politics of envy will stir, resulting in pressure for greater equality and an attack on the rich. Society may fray as protectionism replaces globalisation and an ugly xenophobia rears up again.
Endquote
RTWT.
Plundered, south Auckland is easy, consider something outside godzone. 3rd world, say pakistan, they have nukes, how is peace kept when such realise that godzoe and the other developed countries have used it all up? rather than riot with broken glass what about a few nukes?
Financial wealth - delusion, yes it is.
Promises cannot indeed be met even today let alone how much more will be promised in the next few years IMHO. Reason I quit the Green party was because they to had jumped on the promises band wagon and away from the moral high ground.
Q is just how many places in the world where the lid is kept on by the handouts, like Brixton in London, or Birmingham, or Arab spring or ....rinse and repeat all over the world with high youth un-employment.
Rich, yes pollies, yes a few could end up as a necktie party at a lampost, but like I said thats the odd person in the wrong place with the wrong expensive look, thats minor. When I read the Greek Pollies had had their escape route checked and cleared I realised they must know how close things could get to a bad problem.
regards
Hey all you Jaffas and other smokers, it's not just the big cities. I first observed foreigners buying up large in Whanganui in 2004. Yep a German woman who came here for a week, bought 10 houses and then went home. There are regular buying trips by people from Oz, and recently i was told of a Hong Kong based Chinese chappie who instructed a real estate agent to sell all 27 of his properties. Naturally he was talked out of it because the agent wanted to do his bit to manipulate the market by keeping the prices up, but I thought he should listed them all at once just to bring the market down a little.
Over all the whole picture of economics here though is one of woe and BOHICA (bend over, here it comes again!) as the very wealthy and politicians fiddle at the edges.
Yet another indicator that the NZ economy is steaming away:
http://www.stuff.co.nz/business/industries/8694288/Good-times-for-servi…
''The service sector is enjoying its best three-month spell since 2007, when the global financial crisis hit.''
And yet interest rates remain rooted at the same hyper-stimulatory levels as they were at the worst times of the GFC. Surely the RBNZ should be moving rates on to a more neutral setting? At the very least getting rates back up to neutral would give them extra leeway to cut if things turned nasty again.
Surely the RBNZ should be moving rates on to a more neutral setting? At the very least getting rates back up to neutral would give them extra leeway to cut if things turned nasty again.
One can only conclude the RBNZ Governor would be acting out of stubborn perversity if this evidence does not conclusively change his rate forecast opinion, given that Treasury forecasts a 3.9% price growth component in GDPE to March 2014. Read more
Why do we target Non residents when we are at the same time encouraging foreign investments??
NZ has one of the lowest population density country in the world. Instead of forbidding non resident from buying houses, we should encourage them to buy houses and rent them out to residents and at the same time tax them until they cry.......The problem we are facing here is not non resident buying houses but the supply of new houses in the market....
We can easily solve the problem by increasing Land supply (but Len Brown and Co opt instead to RESTRICT land supply).
We can solve our labour problem by training our youth in Construction ....(but the National Goverment chooses to drip feed training opportunities for our youth)
We can slow demand for houses if we increase mortgage interest rates or impose higher LVR for housing loans (But our RBNZ chooses to do nothing)
We can even milk non resident owners dry by taxing non resident house owners at a higher rate (but our Councils and Goverments are too dumb for that !!)
No, I believe you are buying into interested party propaganda. It is clear that many are buying into this country, it does no good for the economy at all as it just creates conduits for money to leave the country, it does not create jobs and nor does it create wealth. And as we have seen foreigners with higher rated funds have maney to burn and are prepared to pay prices that Kiwis cannot afford. Supply may be a part of the problem but no greater than that of foreigners buying up large.
Correct. Think through your comment above about the fly-in fly-out FIFO visitor who bought 27 properties. That's 27 once-upon-a-time local home owners who are now either leaving the country or looking for the nearest trailer-park or caravan-park. Or sale-and-lease-back. Regardless of whether it's the first or the last domino.
Think about what would happen if all the local auckland home-owners jacked up and refused to sell regardless of offers "too good to refuse". What would the FIFO buyers do. Yep, keep upping their price until a seller capitulated. At some point the available properties held by locals will dry up. Eventually it will be FIFO's selling to FIFO's. Once the selling FIFO has obtained residency.
Lately, he has been busy selling out of some properties he owned for a number of years in New Zealand but he does like equities in Iraq and believes there is money to be made buying condos and villas in Vietnam. From his base in Asia, Faber is well placed to form a view on Australia, China and the resources boom.
http://www.afr.com/p/markets/not_all_doom_and_gloom_says_marc_2ecWXUKT4…
His first visit here was in 1974 and he believes Australia has always been a boom-bust economy and probably always will be.
He bemoans our weak competitive position in manufacturing and thinks it’s no use producing cars in Australia because the market is small and the labour cost relatively high.
He has, however, been moderately positive about Australia for years thanks to the resources boom but is now concerned we have a huge credit bubble on the household level and these debts will be a burden for years to come.
“Once you are so heavily indebted, then obviously your consumption will grow at a slower pace,” he says.
Faber also says investing in resources is a tough business and believes miners are always bullish about mining.
“I’m on the board of some mining companies. They’re always optimistic about the price of copper, the price of gold and the outlook for mining,” he says.
“As a director of these companies I can tell you mining is a very, very tough business. Extremely difficult. You have to deal with finding resources, exploiting the resources, and then comes the big question mark, the environmentalists, the government, expropriations and increased royalties. These are all huge risks.”
He said he feels “deeply uncomfortable” with that much allocation to equities, but also doesn’t want to shut stocks out entirely given the possibility they could still rise significantly before a correction.
“In the 40 years I’ve been working as an economist and investor, I have never seen such a disconnect between the asset market and the economic reality ... Asset markets are in the sky and the economy of the ordinary people is in the dumps, where their real incomes adjusted for inflation are going down and asset markets are going up.
“Something will break very bad.”
http://www.theglobeandmail.com/globe-investor/inside-the-market/master-…
As they move lower in price, will the government be compelled to reverse asset revaluations that justified extraordinary retail utility price hikes?
I drew the committee’s attention to more than $10 billion of asset revaluations that the generator/retailers had credited to their books.
That sum, which had risen to $12 billion by 2012, represents the present value of the amount by which those companies’ profits are above what would have been needed to give them a fair return on all the money they have paid out, both to acquire their generation assets back in the late 1990s, and to install new assets since then.
I pointed out that if one of the standard models of regulation used overseas had been applied here at the time ECNZ was broken up in the 1990s, most of those asset revaluations would have been prevented, because the industry’s ability to price-gouge its captive customers and capitalise the resulting profits as “fair value” would have been blocked.
The central reason for regulating the New Zealand industry would have been to hold prices and asset values down to the lowest levels consistent with security of supply.
When you look at the USA one aspect that is different....doing well? recovering? yet school districts look to be in a bad way...
http://www.takepart.com/article/2013/05/13/michigan-school-district-fir…
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