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 #5 and #6 from Gareth Morgan on Auckland's crazy housing market.
1. 'All guns blazing' - US Federal Reserve Chairman Ben Bernanke was expected to try to calm markets nervous about the end of money printing.
Instead he came out 'all guns blazing' as BusinessInsider says and was even more specific about when the money printing would end.
It was no surprise then that the US 10 year bond yield -- the one everyone watches -- rose almost 20 basis points to 2.36%, its highest in 15 months.
Now we'll see whether the markets can kick their addiction to free money.
And, more importantly, whether the developed world's biggest economy can manage a self-sustaining recovery.
I think it's going to be tough to get real growth when there's still so much debt weighing down US households and so little real income growth.
Here's Business Insider with its interpretation:
Today, most were expecting Federal Reserve Chairman Ben Bernanke to attempt to soothe markets.
After all, volatility in the Treasury market, caused by uncertainties surrounding how soon the Fed will begin to taper the pace of its bond-buying program, has had earthshaking reverberations around the world. Instead, Bernanke and the Fed did just the opposite. The FOMC revised up its economic forecasts – implying a quicker economic recovery, meaning tapering is closer than previously assumed – and even laid out a roadmap for tapering, saying bond buying could be completely finished by mid-2014.
This development wasn’t even borne out of the discussion in the Q&A with reporters – Bernanke had it ready to go in his prepared remarks to launch the presser. Guns blazing.
“If the incoming data are broadly consistent with this forecast, the Committee currently anticipates that it would be appropriate to moderate the monthly pace of purchases later this year,” said Bernanke, referring to the FOMC’s newly-released macroeconomic projections. “And if the subsequent data remain broadly aligned with our current expectations for the economy, we would continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around mid-year.“
2. China's deepening cash crunch - FT reports this is not going away in a hurry, as some had hoped. Read the tone of the comments from the PRC's propagandists. It's all about tightening monetary policy.
Short-term interbank rates jumped more than 200 basis points to a record high of nearly 8 per cent for loans of one month or less, in the latest indication of how tight credit has become in China.
The main reason for the lack of liquidity has been the central bank’s reluctance to pump liquidity into the money market, wrongfooting banks that had expected Beijing would continue to support them with large cash injections.
Signalling that the cash crunch could persist for a while, the China Securities Journal, a major state-run newspaper, ran a front-page commentary saying China was at a turning point in monetary policy. “We cannot use as fast money supply growth as in the past, or even faster, to promote economic growth,” the newspaper said. “This means that authorities must control the pace of money supply growth.”
3. Now that's a tax evasion fine - FT reports Dolce and Gabbana have been fined 500 million euros for tax evasion. Reuters is not so sure, saying it could be 10 million euros. It's still a lot.
It is a supply issue – but not supply of property, but rather supply of finance. And whether that supply is so high as to put the banks’ balance sheets at risk is beside the point. The damage is being done to the economy anyway as non-housing investment is shunned in favour of speculative demand for housing, demand that has nothing whatever to do with the demand for accommodation.
The problem with demand for property in New Zealand is one that has arisen as a legacy from a long history now of Reserve Bank prudential policy combining with selective tax policy to provide a toxic little no brainer for property investors. Put bluntly, it is the easiest way in town for people to make money – all they need do is gear up and the tax-free gains are, over time, sumptuous. All Kiwis know this and it is the national pastime.
6. 'Just buy houses' - Here's Part II of Gareth's comment on the latest housing boom. He's right.
Nowhere is the housing circus more entertaining to watch than in Auckland, our largest city and the giant sucking machine that’s pulling more and more New Zealanders north of the Bombay Hills as the jobs are there or nowhere.
So long as those desperadoes are in the market, forced to Auckland because of the job market and desperate and able to buy, courtesy of large dollops of credit courtesy of their banks, then it’s like babies to the slaughter insofar as an investor or property speculator is concerned.
I’ll have five houses please – it’s a certainty prices will rise, profits are all tax free, gearing available to amplify my gains – oh it’s all too much, why bother with the day job. And the more the merrier, this bubble is so much fun.
8. Can you inhale calories - It seems you can, Slate reports, but it still makes you fat.
Public health officials worldwide are warning young people off the new trend of “smoking alcohol.” The user either pours hard liquor over dry ice or heats it, then inhales the vaporized alcohol. Some believe the process affords the inhaler a high without the calories of alcohol, but experts say there are still calories involved. Can you really inhale calories?
Yes. Inhaled alcohol has to travel through the bloodstream to make it from the lungs to the brain. Once it’s in the blood, the alcohol will be metabolized and deliver calories to your cells. Inhalation is, however, a slightly lower-calorie booze-delivery method than ingestion. When you drink, your stomach and liver break down a portion of the alcohol before it enters the bloodstream. The metabolized alcohol has caloric impacts but doesn’t contribute to drunkenness. Inhalation bypasses your digestive organs. The caloric savings of volatilizing hard liquor are minimal, though, because of its composition.
9. Will NZ join this tax avoidance crack-down on multinationals? - Here's the G8's plan.
10. Totally John Oliver on US immigration reform
(Updated with cartoons)
29 Comments
#6 By all means throw your morality out the window and speculate on housing. But the more you do the greater the problem will become. Just don't complain when you are stuck with an illiquid asset and the sentiment towards housing turns negative. The more the upside is pushed, the more ferocious the downside.
Scarfie - those comments are just you speculating.
Buy, hold and pray isn't how I invest in either myself or my business.
If I were to speculate I would be working for someone else not myself.
The longer the house supply is restricted the higher the prices will go. So don't go on about morality as others and myself have always advocated that the supply must be increased to remedy the affordability situation.
The US's last "recovery" was led by building, it blew up and the drops were 30~40% and we see empty plots and houses.....if there was so much real demand they would be occupied. Even the occupied ones we have to ownder how many are under-water and behind but are being sat on so not to realise losses for the banks. NZ has up til now hung onto OZ, now Oz is flagging expect NZ to as well..
tulip anyone?
I think morallity is an issue. I went to a property seminar years ago and there were people walking about with glazed eyes. To me it looked like a sure fire way for anyone who could work a system and I watched quite a few people step out of their normal place in the economy and ride an elevator that put them up with Lotto winners. I also saw the other side, people taken advantage of by gready realestate agents and their investor buddies. What happend (in reality) was not wealth creation but a capture of the wealth.
Yes so immoral - some people even invest in currencies and the stock market - driving prices of those asset up as well - how dare they!
Oh the humanity.
People need to get back into church and learn get some moral guidance.
I hear the catholics are good in that area.
#5 - lets start calling the housing game what it is: farming humans! No more, no less. You buy a farm (a rental) and you fill it with livestock (people), and then you pretend thats OK.
Even better, no greenie's will harrass you for battery farming humans, so the returns are better than pigs or chickens, and no hassle from left wing socialists.
Sounds grand.
The Ministry of Business, Innovation & Employment throw some light on your prognosis for those considered to require analysis for social housing purposes.
The main page is found here. Nevertheless, the Key Social Housing Indicators report is of particular interest.
An article that is very pertinent to the housing game or what is really is, unearned income. Those who are quite happy to continue taking with no thought or care of the ramifications consequences. Pure unadulterated self interest.
I wonder how many with psychopathic disorders we have here on the forum at interest.co.nz?
Scarfie - now I'm laughing. Unearned income is a reality you usually find the recipients of unearned income in Government buildings.
How preposterous to accuse people who get off their butts and who are self-reliant and self-responsible as having a disorder as you listed above.
“The most hated sort, and with the greatest reason, is usury, which makes a gain out of money itself, and not from the natural object of it. For money was intended to be used in exchange, but not to increase at interest. And this term interest, which means the birth of money from money, is applied to the breeding of money because the offspring resembles the parent. Wherefore of an modes of getting wealth this is the most unnatural.“
Aristotle.
The principle of unearned income isn't really that hard to understand. Interest is just one form, capital gains an expresson of it. Rent is another form.
c'mon notaneconomist .. preposterous? .. really? hardly !!.. psychopaths and sociopaths are all clever, driven, self-starters, very-self-motivated, get-off their butts, get-up'n'go, type people ... it's the damage they cause to other people that identifies them .. scarfie is correct
Iconoclast - You are forgetting a few things. Taking advantage by deception, dishonesty, manipulation etc are present. This is the unhealthy and negative side.
People who put others down usually have a hidden motive.
Everyone is driven, self-starting, self-motivated etc. Some people use this positively for themselves while others use it negatively to get something from/off someone else. Both types of people need to put in effort somewhere.
"It is a supply issue – but not supply of property, but rather supply of finance"
I've read and enjoyed both articles - the only issue I take is that it's actually both. The line would be better read also as saying something about incentives, which is actually his main point.
"It is a supply issue – supply of finance and incentives, as well as of property"
And He didn't say it, so I will - 'Fat Cats'.
SK - we need to move on. Money in itself is a proxy - no more, no less. You can do everything - building schools included, without money being involved at all. We happen to use it as an interface, but the work and the initiative can tie up without dosh. Dosh, on the other hand, does diddly-squat.
Perhaps the world of antiquity already grasped that fact, which would have meant they could have dispensed with economics and concentrated on realities.
Going down the Urals....
But the Ministers want an investigation into price-gouging, right?
The longer this goes on, the sicker the joke. Where's the grunt for a re-boot? Further in the rear-view mirror each year, is where.
StephenL - remember that no $ is underwritten without energy having been used. So you're measuring with the wrong thing.
That said, we know that when demand ramps rapidly - and real exponential growth, oddly enough, does that - the bubble pops @ $148usd , in 2008 terms. That ramp was rapid though; it's probable that a slower rise would have discovered the pop-point to be lower - perhaps in the $120's. Who knows, though, what the $ is 'worth' now, post Bernanke?
Available fossil energy will saw-tooth down, is my guess. Every rev-up will raise the price (magnified as usual by speculation) and at some point, the rev-up gets choked for lack of supply. Rinse and repeat. We go into social collapse (unless we're smarter than we appear to date) well before it gets far down the gaussian curve, though. Nobody can say how long things stay intact and pumping. The precedent migh be the USSR sattelites, and their degrading rigs/infrastructure. Unreliable, sporadic, failing.
Remember the graph I repeatedly put up:
http://www.smithsonianmag.com/science-nature/Looking-Back-on-the-Limits-of-Growth.html
By that reconing, you don't use $ to measure anything, 16 years from now. That 1970 prediction didn't take account of the Chinese/Indian acceleration, nor of the algal bloom which was credit expansion. It looke to me like like the fiscal freeze-up was just avoided in '08, that nobody has any answers, and it will go again, much sooner. Again, you can saw-tooth that for some time: personal defaults, bank defaults, govt defaults.
Maybe you can tell me - if one or two default or go bankrupt, the majority can continue. But at what mass/percentage of defaulters/bunkrupts, does the whole system fall over?
I'd suggest that in 2008 enough mortgaged Americans went into technical default that if the Fed and indeed other CB's had been forthright in allowing transparent views into the banking system, thebanking the system would have fallen over. ie I think a lot of default has been allowed to go off book and stay their because if its accounted for the banks are bankrupt due to leverage. Ie Ireland on a grander scale....except no one to lend to them on "reasonable" terms. My view is its criminally fraudalent, but dealing with it would see us collapse.
So there is a % where the system would fall over if known, but if no one tells the tale, why would it fall over? The not so bright greedies are busy buying and selling shares, they make their money on the turnover. Hence even if they know how bad it is, they are playing musical chairs and are gambling they can head home before the music stops. The brighter greedies are in US treasuries where they feel safe (haha). Meanwhile the poor are being fed on as what they need (ie over-priced housing, commodities eg food and oil) is more expensive than it should be....its parasitic.
regards
Does he say its expected? I must have missed that. This has been commented on for 3~5 years, before that some ppl/economsts thought $300 or $500 was quite possible. The trouble with that is such a comment was made by ppl who had the ability to pay it. The big driver is poorer ppl and the economy cant pay over $150USD and even over $120USD is doubtful, bye bye economy.
So there is a Net difference, a) if demand is less than supply, even is supply is falling the NET effect is a drop. b) Every time energy costs get to 6% of US GDP the US goes into recession, thats about $120USD based on the gross GDP, when you take out the financial smoke and mirrors bit of GDP the $100 seems closer, ie the US is in permanent recession. Marginal extraction costs are $90USD, hence fields costing more than todays price must be seriously questioned as to ever being developed. That means supply could fall very fast inside 10 years. BP's Horizon I think was $150+USD a barrel to extract, hence I think a lot of the remaining oil, oil that costs over $150USD to get out will never be got out. So if someone can take the hubbert curve and plot $150USD on the downward curve, as we appraoch that point supply will drop off a cliff...
I think thats inside 15 years, even 10 years.
(8mins in for english)
http://www.youtube.com/watch?v=aylvkCqp8ak
http://www.youtube.com/watch?v=SLeLn4hDEMQ
regards
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