Here's my Top 10 links from around the Internet at midday today.
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 from Albert Edwards on China's Minsky Moment.
1. China's 'Minsky Moment' - Societe Generale suggests in this research note (via ZH) that China's economy may be about to have it's 'Minsky Moment'.
A Minsky Moment is when asset values slump after a company or a government can't handle its interest costs any more.
Societe Generale's China economist Wei Yao reckons China, which now has a debt service ratio of 30% internally, is about to have its Minsky Moment.
This follow's Fitch's warning about rising debts inside China.
Here's Societe Generale's always colourful and often bearish Albert Edwards with his view. He uses the P word.
We, always, always should watch China now.
The numbers of sobering and the chart below showing credit growth being much higher than GDP growth:
So clearly if Wei thinks China is approaching a Minsky moment akin to the US situation in August 2007, I'm sitting bolt upright and taking notice. In her piece, which is so important I reproduce it in full below, she explains why rapid credit growth is not being utilised by the real economy (i.e. why the credit multiplier has declined so much).
She writes "At the macro level, we estimate that China’s debt servicing costs have significantly exceeded underlying economic growth. As a result, the debt snowball is getting bigger and bigger, without contributing to real activity. " Forgot Minsky moment, this is classic Ponzi pyramid!
She calculates "a shockingly high (corporate) debt service ratio of 30% of GDP, of which 11% goes on interest payments. At such a level, no wonder that credit growth is accelerating without contributing much to real growth. The BIS estimate a number of economies had similar or moderately lower debt service ratios when they were headed towards serious financial and economic crises. Examples include Finland (early 1990s), Korea (1997), the UK (2009), and the US (2009).
This is one more data point in China that evokes the troubling thought of a hard landing." And Wei's conclusion: "the logical conclusion has to be that a non-negligible share of the corporate sector is not able to repay either principal or interest, which qualifies as Ponzi financing in a Minsky framework."
2. Don't worry about inflation - Kenneth Rogoff (yes that one) reckons inflation is not a problem and the hawks calling for a tapering of money printing need to back off.
Each of the world’s major central banks can make plausible arguments for caution. And central bankers are right to insist on structural reforms and credible plans for balancing budgets in the long term. But, unfortunately, we are nowhere near the point at which policymakers should be getting cold feet about inflation risks. They should be spiking the punch bowl more, not taking it away.
3. Fix the banks - Martin Wolf at the FT.com says Britain must fix its banks, not its monetary policy.
Of course, the government is desperate to get lending restarted. That is also the explanation for its foolish Help to Buy programme, announced in the Budget, aimed at providing a guarantee to lenders offering mortgages to people with deposits of only 5-20 per cent of the purchase prices of homes worth up to £600,000. Yet what is appealing in the short term may prove a big error in the longer term. A lending boom followed by another crisis is the last thing anybody should want.
4. Wealth inequality in America - This video is well worth a watch.
5. What happens when the money stops being printed - Meredith Whitney, the banking analyst now famous for saying in 2007 that Citibank was in trouble, wonders here what might happen to New York when the Federal Reserve turns off the money printing machine.
Now that the Fed purchase programs appear to be coming to an end and global growth continues to struggle, it is hard to imagine New York will benefit from similar tailwinds. Already struggling with limp revenues Wall Street firms have cut and are continuing to cut thousands of positions.
6. Pay up or else - Quartz reports Chinese men are now having to pay up to US$24,000 for a bride. This is one of the legacies of China's one child policy. There's even a map of bride prices.
Shanghai grooms typically have to pay their would-be wives a “bride price,” which starts at 100,000 yuan ($16,300). That’s according to a national map (registration required) of bride prices—a kind of reverse-dowry in which men pay a woman and her family in order to marry her. The map, which was created by the Chongqing divisions of Vanke, a real estate company, and Sina’s real estate channel, has sparked debate around the nation about how the bride price tradition reflects an obsession with materialism and makes it hard for young Chinese couples to start families.
Because it’s difficult for men of normal means to meet the expected bride prices, many of them simply cannot afford wives. Though Shanghai had the highest bride price, in most provinces it fell in the range of $9,780 to $13,000 range, and many online commenters said the map underestimated the standard bride price (link in Chinese). The average annual income, by contrast, is about $9,300.
7. Massively leveraged - The Guardian points out just how indebted some of Europe's economies are.
Ireland, Greece and Portugal are labouring under debt-to-income ratios of more than 300%, according to figures that expose the indebtedness of eurozone governments in relation to their government revenues.
The measure, intended to show governments' abilities to pay debts, shows Ireland's total debt in 2012 was €192bn (£163.1bn), or 340% of the government's income. Ireland came a narrow second in the table to fellow bail-out recipient Greece, which has amassed an even worse debt-to-revenue total of 351%. Portugal – which has also received aid from the troika of the International Monetary Fund, the European commission and the European Central Bank – came third with a debt-to-revenue ratio of 302%, while Britain was sixth last year on the list of 27European Union member states, with a debt-to-revenue ratio of 212%, according to calculations based on European commission figures.
8. There's more to being a director than just enriching shareholders - So says John Kay in this thoughtful piece on his website. It's a matter of law, he points out. It's relevant here given we share much of the same legal background.
British law might have said that the duty of directors is simply to promote the interests of the company’s members. But it doesn’t – and that is no accident. The present formulation – sometimes described as enlightened shareholder value – intentionally struck a middle course between those who argued that the law should simply say that the job of directors was to make lots of money for shareholders, and those who favoured a broader – stakeholder – view of the role of the corporation.
The compromise adopted imposes the duty to promote the success of the company, for the benefit of the members. The obligation of the board is to the company, and if its duties to the company are faithfully discharged the members of the company will profit from the success of the company. In reality, that is how most directors, and almost all directors of successful businesses, think about their roles. They aim to make the company prosper and grow, chiefly for the benefit of its members.
The OECD has observed, for example, that over the period from 1990 to 2009 the share of labour compensation in national income declined in 26 out of 30 developed economies for which data were available, and calculated that the median labour share of national income across these countries fell considerably from 66.1 per cent to 61.7 per cent … Looking beyond the advanced economies, the ILO World of Work Report 2011 found that the decline in the labour income share was even more pronounced in many emerging and developing countries, with considerable declines in Asia and North Africa and more stable but still declining wage shares in Latin America.
It wasn’t always this way. As Taylor notes, before the 1980s, labor’s share of national income fluctuated somewhat from year to year but tended to be stable overall. Also, during this period, we’ve seen large surges in productivity — and yet those productivity gains are not being shared by labor. This is an ominous sign for any society. One of my all-time favorite quotes is this one, from John Maynard Keynes: “Nothing corrupts society more than to disconnect effort and reward.”
24 Comments
9, reward should be related to effort: How do you define effort?
You want 37 tennis balls taken up to the 27th floor. One person carries them up the stairs one at a time; the second puts them into a box and carries that up the stairs; a third takes them up in the lift; the fourth gets 36 of his mates together and they each carry one tennis ball up the stairs.
Who's made most effort? Who has best achieved your objective? Which one would you hire again? These are not the same questions.
If a single worker is able to produce twice as many widgets as he could before because his employer has developed, and provided him with, an upgraded widget machine, who should get the reward for that?
If a single worker is able to produce twice as many widgets as he could before because his employer has developed, and provided him with, an upgraded widget machine, who should get the reward for that?
It's hardly ever the employer, it's the clever, but nonetheless poorly paid, graduate/lecturer at a state funded educatonal institute that develops/makes the clever innovations - the best have been forced to take their PhD's from New Zealand to work at the likes of IMP for the benefit of large mutlinationals.
What happens when the employee develops a way of producting twice as many widgets as the employer was doing before? Does the employer give the employee half the company as his value is equal to half the profits? Don't think so somehow, and I have been there except the multiple was 5x.
Exactly right Scarfie. The benefit flows to the owner in the end. Not saying should, but it's the way it works.
And it's the reason that as individual business owners, and as a nation, we should retain ownership of our stuff, ownership of our businesses and farms. And not fall for the first offer that comes along.
Well many employers would say the employee is being paid. Now I dont disagree legally that a good employer does not need to reward that employee with an extra, but I think it would be a good and fair employer to do so.
What really sucks of course is when an employer tries to make claims on an employees externally generated improvements ie in his own time, then I have a huge issue, especially if the employee has invented something thats un-related to the actual employment. I used to refuse to sign such an annual requirement from my ex-amarican employer EDS whenever it came through, knowing they had screwed several employees over already.
regards
#8 is an interesting piece with directors' duties being a little more subtle than I had ever thought.
Aucklanders may want to ponder John's thoughtful piece while contemplating the fact that the government has placed two major classes of public assets (roads and water) into the hands of directors rather than politicians. What this piece makes clear is that, Statements of Intent notwithstanding, the directors of these two companies have to act in what they themselves think is the best interests of the company. Where there is conflict between the desires of the democratically elected councillors and the directors, the directors will win every time..........which, of course, might turn out to be a good thing. We'll see.
Kumbel -- Sounds like in that scenario the interest of a good water supply, or a road without potholes won't get a look in. The interest of the company will prevail.
Mind you. Councils have been putting their own interest well ahead of infrastructure etc for years.
OMG_WTF......here they can go look for themselves....http://rense.com/general66/scgh.htm
Funny I couldnt locate Koran...Achmed... or camel anywhere, that said ,I'm now convinced I must have qualified for a quick apraisal.....tic..tic..
It's a toughy isn't it...?interfering with privacy to maintain liberty.....There have always been terrorists I'd guess, it's just a question of who was terrorising whom subjectively speaking.
code word for the day Speedbumps.
This is the real big news at the moment - emerging market bond meltdown:
http://au.businessinsider.com/emerging-markets-bond-meltdown-in-charts-…
Halfway to an emerging bear market:
http://in.reuters.com/article/2013/06/11/us-column-markets-saft-idUSBRE…
and the Kiwi $ is starting to tumble in the backdraft from all of this..........once this gets to work on some of our imports the RBNZ wont be able to sit so smug on inflation.
There HAD to be consequences once the Fed even talked about turning the printing presses off - well here they come IN SPADES. There is no such thing as a free lunch.
There HAD to be consequences once the Fed even talked about turning the printing presses off - well here they come IN SPADES. There is no such thing as a free lunch.
My money is on Bill Gross's explanation - it involves Japan and those using other people's money needing to pay it back.
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