Bernard's Top 10: Deflation in NZ retailing; China's property bubble is finally bursting; Lower rates for longer and bigger bubbles for longer; Ready for a zombie apocalypse? Dilbert

Here's my Top 10 items from around the Internet over the last week or so. 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 reads today are #6 and #8 on the moment of truth that China's property market now faces and the PIMCO analysis of the global growth, deflation and interest rate outlook. Very connected.

1. Still under water - It was a long recession and the after effects are still being felt in some suprising ways in New Zealand.

Westpac has produced this chart below showing that real retail sales per person are only now back near their 2007 peaks in New Zealand.

No doubt deflation for many imported goods prices is a factor, thanks to plentiful production capacity offshore and the very strong New Zealand dollar.

As is a genuinely more conservative approach to spending and saving.

An ageing population may also be having an impact, as is much more online shopping on offshore sites.

It's certainly hard work in retailing these days.

Here's the chart and Westpac's comments:

While sales of cheap imported goods have rocketed, the NZ dollar may be hurting demand in other parts of the sector. Non-store retailing (which includes domestic online retailers) has fallen in the last two quarters after a period of very strong growth – New Zealand retailers may be losing market share to offshore competitors. Similarly, accommodation rose 1.9% in the March quarter but was flat on a year ago, as the high exchange rate has made overseas travel relatively cheaper

2. 'Open the floodgates' - Martin Wolf writes in this FT piece that the European Central Bank should promise to do whatever it takes to stave off deflation. We keep forgetting that the rest of the world still has interest rates at 0% and is either printing money, about to start printing money, or is about to print even more money.

It seems bizarre. So much money. So much asset price inflation. But so little actual goods or service price inflation. The conundrum of our age.

The recovery in confidence is encouraging and the revival of growth welcome. But the former is too fragile and the latter too feeble. The eurozone’s authorities – and above all the ECB, its only effective actor – can and must do far more. Avoiding catastrophe is still not guaranteed. That is anyway a grossly insufficient goal. The aim must be to secure a healthy recovery. It is the ECB’s job to hit its inflation target and strengthen credit markets. It must do whatever it takes. It has not yet done enough.

3. Britain's ludicrous Help to Buy scheme - It seems astonishing, but Britain's Government is still encouraging and subsidising home buyers in Britain to gear up to buy property, even though there is a fully fledged boom going on.

Now the Labour Opposition is finally calling for it to be abandoned. Good.

4. China is ageing - This Business Spectator piece on the looming problem of an ageing population in China is well worth a read. It focuses on resarch done by Vanke, the country's largest property developer.

Vanke has been looking at China’s demographic change for the last year on the behalf of the central government. The research results as revealed by Mao in the leaked speech are scary, to say at the least.     

Between 2028 and 2033, Chinese citizens older than 60 years would number between 390 million and 440 million. In addition to that, the country would also need to look after another 270 million people. That number includes 40 million disabled and 230 million underage people.

What it means is that in less than 16 years time, the country’s 700 million working-age people need to support roughly the same number of old, young and disabled people. By way of comparison, more than 900 million working-age Chinese are looking after 500 million people today. And that is going to change dramatically in the next two decades.

What does it mean for the Chinese economy? It simply means that the number of jobs will shrink, the country has to take on more debt, innovation will suffer and mobility within corporations is also set to decline.  There is no better example of this than Japan, the once-vibrant economic power house that has been weighed down by its greying population.

5. 'One time only. Rush to buy now' - This Simon Rabinovitch piece in the FT is a fascinating look behind the scenes at China's property market, which, by the way, the Reserve Bank here said yesterday it was watching pretty closely for early indicators of financial and economic strife inside China.

When New Century Real Estate cut its housing prices by 15 per cent two months ago, the Chinese developer, far from panicking, was in a triumphant mood. It believed the discount was a deft move to get ahead of the market and sell its unsold backlog of apartments.

Chinese property companies have reduced prices on only the rarest of occasions over the past decade, during which time average property values have more than doubled. New Century calculated that its cut – at the Mingjun residential complex in the eastern city of Hangzhou – would attract a flood of interest. It was right, at first.

The number of people viewing properties quintupled overnight, according to Luo Chengwu, an operations manager. Media from state broadcaster China Central Television to the local press covered the news – attention that New Century lavished in, trumpeting the reports on its website. “One-time only, rush to buy now!” its advertisements screamed.

Yet by the first week of May, the initial excitement had subsided. Other developers around the city of Hangzhou had also lowered their asking prices and New Century’s offer was no longer so unique.

6. 'The bubble is bursting' - Jamil Anderlini, an excellent New Zealand financial journalist working for the FT in China, uses the b word in this piece. The moment has arrived, it seems.

China’s economy is sputtering as evidence mounts that a nationwide property bubble is on the point of bursting.

Virtually every indicator for economic growth in China turned down in April as the all-important real estate market saw sales fall 7.8 per cent in renminbi terms in the first four months from the same period a year earlier.

Investment in real estate is the single most important driver of the Chinese economy and a crucial factor in global commodity demand and pricing.

But in the first four months newly started construction projects fell 22.1 per cent compared with a year earlier, according to government figures released on Tuesday.

The sustainability of the Chinese real estate market has become a concern for policy makers everywhere as they start to worry that a property crash in the world’s second-largest economy could ripple round the globe.

7. Norway's counter-cyclical buffer - New Zealand has the high LVR speed limit, which worked to take the heat out of the latest boom.

Norway has just imposed a counter-cyclical capital buffer, which forces the banks to put more capital aside and slow down their lending.

Ambrose Evans Pritchard at the Telegraph compares Norway with Britain, which is still doing 'help to blow bubbles'.

8. 'Slower for longer' - 'And lower for longer'. That's the conclusion about growth, inflation and interest rates in this PIMCO 'secular outlook' report that concludes things are far from 'normal' in the global economy and with interest rates. China and Europe are likely to keep interest rates low for a very long time, PIMCO concludes.

So the conclusion for the layman is borrow up to your eyeballs to buy property and stocks to make massive capital gains because central banks and Governments will keep printing money and putting taxpayers' money behind banks to keep the whole shooting match afloat. 

And the music will never stop...

We'll see.

Here's PIMCO.

The total stock of public and private debt outstanding in the global economy is at an all-time high in dollar terms (and as a share of global GDP is larger today than it was in 2007, before the crisis). So while there is a consensus that an excess of private sector and European sovereign leverage contributed to the global financial crisis – and later the European sovereign crisis – there has been no decline globally in aggregate leverage. Private sector deleveraging that has occurred has, at least on a global basis, been replaced by public sector leverage.

Chinese officials are well aware of the disasters that have befallen countries that liberalized their external capital accounts before cleaning up their banking systems, and as a result monetary policy must remain accommodative.in Europe the leverage overhang is likely to remain an important consideration for ECB policymakers in the years to come, keeping rates lower for longer and adding to the odds of a major quantitative easing program.

There is a risk that the global economy – not just the U.S. – will be unable to grow and generate inflation at pre-crisis levels for many years to come – even if monetary policy rates remain at zero in nominal terms and negative in real terms. Thus the theme of our Secular Outlook is “The New Neutral.” If real neutral policy rates are centered at 0.0% or less for the next three to five years the investment implications are significant because the level of short term rates forms a fundamental component of all asset prices.

9. They're comin' to get ya' - I have a confession to make. I quite likc watching all those zombie television series that are popular these days.

My favourite is Walking Dead. It's beginning to feel a bit like 'Lost' now (all that pointless wandering around), but still worth a watch, usually with my hands over my eyes.

It turns out the US military takes this stuff pretty seriously (or at least like to use zombies as proxies for enemies). They sure love their plans.

Foreign Policy has a piece here on the US military's plans to deal with the zombie apocalypse.

It's sort of a joke. Sort of.

"This plan fulfills fictional contingency planning guidance tasking for U.S. Strategic Command to develop a comprehensive [plan] to undertake military operations to preserve 'non-zombie' humans from the threats posed by a zombie horde," CONOP 8888's plan summary reads. "Because zombies pose a threat to all non-zombie human life, [Strategic Command] will be prepared to preserve the sanctity of human life and conduct operations in support of any human population -- including traditional adversaries."

Navy Capt. Pamela Kunze, a spokeswoman for Strategic Command, acknowledged the document exists on a "secure Internet site" but took pains to explain that the zombie survival guide is only a creative endeavor for training purposes. "The document is identified as a training tool used in an in-house training exercise where students learn about the basic concepts of military plans and order development through a fictional training scenario," she wrote in an email. "This document is not a U.S. Strategic Command plan."

10. Totally about American money politics - Here's Jon Stewart looking at how American politics works and the role of money. I've just discovered House of Cards. It is as addictive as John Key says it is.

Watch both this video and this video to get the full picture.

My apologies that I can't embed the flash code for some reason.