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Top 10 at 10: Japanese fiscal crisis looms; Eric Watson a dairy farmer?; Dilbert
October 23rd, 2009Here are my Top 10 links from around the Internet at 10am. I welcome your additions and comments in the comments below or please send your suggestions for Monday’s Top 10 at 10 to bernard.hickey@interest.co.nz We don’t spend our stockholders money at interest.co.nz…
1. Friends worth having? - Eric Watson has moved on from Hanover and is now trying to list a Dairy farming company on the New York Stock Exchange, Denise McNabb writes in an excellent piece at Stuff. This is just the sort of credibility the global industry needs…
Multi-millionaire Eric Watson is about to create a US$400 million (NZ$531m) dairy company in the United States, using Kiwi farming practices, including grass-fed cows.
The new company expects to halve the costs of an average US dairy farm and grab a chunk of the fresh milk market on the country’s eastern seaboard. The new company wants to raise up to US$150m for the initial roll-out of the dairy business.
2. Bigger PIE? – Brian Fallow at the NZHerald reports on the Tax Working Group’s preference for extending the PIE rules to other investments as an interim measure. The Group seems already to be factoring in a fudge. A pity. We need a reformed tax system that is cleaner, broader, simpler and fairer. More tinkering should not be an option.
They are critical of the “incoherence” of the current system arising from the misalignment of rates, with the top personal rate at 38 per cent, the trustee rate at 33 per cent, the company tax rate at 30 per cent and the capped rate for savings through portfolio investment entities (PIEs) also at 30 per cent. This can distort investment decisions and provides incentives to shelter income in corporate or trust structures (or a combination of both).
The Government’s declared medium-term objective is to align the rates at 30 per cent. Officials estimate this would cost around $1.4 billion a year in lost revenue.
If alignment of the rates proved too difficult in the short term, the working group favoured extending the existing treatment of investment through PIEs, which are taxed at the lower of 30 per cent or the investor’s marginal rate, to other forms of investment income including interest, rents and dividends.
3. Time to rethink – Selwyn Pellett from the Productive Economy Council details why Singapore has it right with monetary policy and why New Zealand has it wrong. It’s worth debating. Here is a useful powerpoint from Selwyn outlining his argument. We love that it’s packed full of charts from interest.co.nz.
4. ‘Naked swindle’ – Matt Taibbi of ‘Vampire Squid’ fame is back in Rolling Stone talking about the biggest insider trade of all time where a mystery trader bet on the collapse of Bear Sterns and won US$270 million. He points out that naked short selling drove Bear Sterns and Lehman out of business, enriching a few. Taibbi doesn’t hold back. HT Bryan Bennett via email. A must read.
That this particular scam played such a prominent role in the demise of the two firms was supremely ironic. After all, the boom that had ballooned both companies to fantastic heights was basically a counterfeit economy, a mountain of paste that Wall Street had built to replace the legitimate business it no longer had. By the middle of the Bush years, the great investment banks like Bear and Lehman no longer made their money financing real businesses and creating jobs. Instead, Wall Street now serves, in the words of one former investment executive, as “Lucy to America’s Charlie Brown,” endlessly creating new products to lure the great herd of unwitting investors into whatever tawdry greed-bubble is being spun at the moment: Come kick the football again, only this time we’ll call it the Internet, real estate, oil futures. Wall Street has turned the economy into a giant asset-stripping scheme, one whose purpose is to suck the last bits of meat from the carcass of the middle class.
What really happened to Bear and Lehman is that an economic drought temporarily left the hyenas without any more middle-class victims — and so they started eating each other, using the exact same schemes they had been using for years to fleece the rest of the country. And in the forensic footprint left by those kills, we can see for the first time exactly how the scam worked — and how completely even the government regulators who are supposed to protect us have given up trying to stop it.
5. Don’t forget Japan – We’ve all been fixated on the ruinous increase in US government debt and its destruction of its own dollar, but we shouldn’t forget the country that is in its second lost decade after its property bubble burst: Japan. Here Hiroko Tabuchi from the New York Times lays out the fiscal ugliness in what is still (just) the world’s second largest economy. This all means interest rates will rise globally and New Zealand will have to pay more in interest for its own NZ$40 billion of borrowing over the next 5 years. HT Troy Barsten.
Here, years of stimulus spending on expensive dams and roads have inflated the country’s gross public debt to twice the size of its $5 trillion economy — by far the highest debt-to-G.D.P. ratio in recent memory. Just paying the interest on its debt consumed a fifth of Japan’s budget for 2008, compared with debt payments that compose about a tenth of the United States budget.
Yet, the finance minister, Hirohisa Fujii, suggested Tuesday that the government would sell 50 trillion yen, about $550 billion, in new bonds — or more. In the immediate term, Mr. Fujii’s remarks prompted concerns of a supply glut in bond markets, sending prices on 10-year Japanese government bonds down 0.087 yen, to 99.56 yen, and yields to their highest point in six weeks.
The Obama administration insists that it understands the risks posed by deficits and ever-increasing debt. Its critics are doubtful. But as Washington runs up a trillion-dollar deficit this year, with trillions in debt for years to come, it need look no farther than Tokyo to see how overspending can ravage an economy.
“Public sector finances are spinning out of control — fast,” said Carl Weinberg, chief economist at High Frequency Economics in a recent note to clients. “We believe a fiscal crisis is imminent.”
One of the lessons of Japan’s experience is that a government saddled with debt can quickly run out of room to maneuver.
“Japan will keep on selling more bonds this year and next, but that won’t work in three to five years,” said Akito Fukunaga, a Tokyo-based fixed-income strategist at Credit Suisse. “If you ask me what Japan can resort to after that, my answer would be ‘not very much.’ ”
6. Just plain over valued – Bert Dohmen points out in this newsletter republished at ZeroHedge that the market value of US stocks is now lower than in 1998 but the price to earnings multiple for these stocks is now higher than it was at the market peak in 2007. He points out that most of the volume on the US stock market is now done via high frequency trading programmes with positions open for seconds, let alone minutes. HT Gertraud via email.
The S&P 500 Index is now selling at 26 times operating earnings. That’s more expensive than at the bull market top in 2007. Are things really better than at the five-year bull market top in 2007? What about the trillions of dollars of bad assets still on the books of financial institutions around the world? Most analysts agree that the market is over valued. Yet they have to participate because the market is going up. They hope to be the first ones out of the exit when the plug is pulled. Do you think you can do that?
7. More money printing - The Bank of England’s Deputy Governor Paul Tucker hinted overnight that Britain may need to print more money. This was not popular with those holding the increasingly worthless pound, WSJ.com reported.
In an interview with the Scotsman newspaper, Paul Tucker said the quantitative easing program — – bond purchases with freshly created central bank money — would be extended if needed. He said that if it was deemed necessary to increase the amount of quantitative easing proposed under the current scheme, then “it would be possible and it would happen,” according to the article.
The BOE’s Monetary Policy Committee is currently targeting a £175 billion bond-buying program, which is also the government’s ceiling for quantitative easing.
8. He said what?! - A Goldman Sachs brahmin came out in London the other day and said it was a good thing that he was paid squillions and others were paid not much. It did not go down well. Here’s the guardian’s take. HT Ross Palmer and others via email.
In remarks that will fuel the row around excessive pay, Lord Griffiths, vice-chairman of Goldman Sachs International and a former adviser to Margaret Thatcher, said banks should not be ashamed of rewarding their staff.
Speaking to an audience at St Paul’s Cathedral in London about morality in the marketplace last night, Griffiths said the British public should “tolerate the inequality as a way to achieve greater prosperity for all”.
9. Supplyside Jesus – An excellent antidote to the story above is this animation by Al Franken about supply side economics. HT Lew Burton
10. Here’s Jon Stewart on the Dow’s return to the 10,000 mark. It means we can party like it’s 1999 all over again. Hooray.
| The Daily Show With Jon Stewart | Mon – Thurs 11p / 10c | |||
| Dow Jones Rebounds to 1999 | ||||
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October 23rd, 2009 at 11:13 am
JESUS WOULD BE PROUD OF THE TOPIC & THE VENUE.
He said what?! – A Goldman Sachs brahmin came out in London the other day and said it was a good thing that he was paid squillions and others were paid not much. It did not go down well. Here’s the guardian’s take. HT Ross Palmer and others via email.
In remarks that will fuel the row around excessive pay, Lord Griffiths, vice-chairman of Goldman Sachs International and a former adviser to Margaret Thatcher, said banks should not be ashamed of rewarding their staff.
Speaking to an audience at St Paul’s Cathedral in London about morality in the marketplace last night, Griffiths said the British public should “tolerate the inequality as a way to achieve greater prosperity for all”.
October 23rd, 2009 at 11:13 am
As i stated before, the $10,000 DOW in 2009 is really only worth $2,300 is 1999 dollars once you factor in inflation and the 25% DXY decrease. You can also make the same calculation with gold and you still get result. Ironically the 2009 DOW would have to be $36,000 to directly compare with the market value of the $10,000 DOW of 1999. I distinctly remember a book by that name…hummm…coincidence?
http://en.wikipedia.org/wiki/Dow_36,000
October 23rd, 2009 at 11:27 am
St Paul’s Cathedral in London,has just had a major makeover thanks to some generous bankers.
This video looks good if anyone wants some weekend viewing.
http://www.informationclearinghouse.info/article23787.htm
\As for Watson, why if they can drop costs by %50 are they not doing so already, sounds like NZFSU all over again,are there any suckers left?
October 23rd, 2009 at 11:28 am
The Yanks will have to give Eric Watson credit for this.
And I am sure they will. OPM.
October 23rd, 2009 at 11:37 am
AEP
http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100001459/dollar-hegemony-for-another-century/
October 23rd, 2009 at 11:47 am
It is true that grass fed cow milk can command a premium in the United States, as can unpasteurized milk. They say, only the Amish know this but they don’t share this information since they don’t use the internet. Many people suspect that US dairy farmers refuse to do any market research or business analysis nor do they go to any of the excellent farming Programs at University of Iowa or Purdue Texas A&M etc. These schools (they claim) are empty which is why American Farmers have not thought of the idea of feeding their heard grass.
Fortunately, a man who presided over the collapse of a finance company is here with a brand new idea and lessons for everyone.
In other news John Meriwether who started LTCM and JWM partners ( both of which failed), is set to launch a new hedge fund.
October 23rd, 2009 at 11:54 am
#3 – yes, ‘Let’s look again at monetary policy’ – why not?
http://www.interest.co.nz/ratesblog/index.php/2009/10/23/opinion-why-the-government-must-be-serious-about-serious-reform-in-budget-2010/comment-page-1/#comment-43096
Do you understand why not now?
October 23rd, 2009 at 11:55 am
What I do not understand with this Goldman Sucks ( and other banks ) / bonus issue is why the shareholders do not jump up and down as well. It the employees did not take so much of the revenue and it was given to shareholders as dividends then wouldn’t the share price increase — thats how I thought it all was meant work. Or are the shareholders sucked in by the PR spin of “the staff will walk” bs etc ? What are I missing here ?
October 23rd, 2009 at 11:58 am
People talk about Dark pools…but in less then five years there will be an entire dark internet:
http://www.nzherald.co.nz/connect/news/article.cfm?c_id=1501833&objectid=10604767
October 23rd, 2009 at 12:14 pm
Ross, the problem is that these banks cant function without their employees. They can literally lose a franchise overnight if a team walks out to another firm.
What is going to change, is that firms that do business with banks are going to demand that they stop making so much money off of them.
Wall st used to be an agency business but now with OTC contracts the firms are agent and principal. This distinction is why people liken the banks to large hedge funds now. because they are taking risk instead of acting as an intermediary
They make a lot of money off of their corporate customers because they don;t generally shop around for the best price.
Shareholders in should be asking companies who hedge fuel or currency etc whether they shop around for the best price.
October 23rd, 2009 at 12:14 pm
If you want to see just how broken Japan’s fiscal problem is, have a look at their budget balances for the last 20 years.
http://farm3.static.flickr.com/2461/4035275235_e55c06e64d_o_d.jpg
October 23rd, 2009 at 12:22 pm
Lew Burton
The problem in the USA is the genetics of the cows. They eat and eat and are huge,they would find it hard to keep this level of production on Grass. I think as we have imported USA genetics into our herds we to have become more dependent on hard feeding our cows,hence the feed pads springing up allover the country.
Grass feeding is not new in the States and Kiwi farmers have been investing there for years. There also has been a move in the USA to fattening beef on Grass, as to taste i think beef off dryer land wins every time, such as Argentina produces.
The USA has regional shortages of milk but is in surplus overall. Raw milk is an on going controversy, the biggest shortfalls are in the the south east caused by rapid population growth in Florida.
Remember the huge size of the grain industry in the USA, the hard feed fed to cattle benefit more self interest groups than you woud think and most subsidies are paid to large corporate farms.
October 23rd, 2009 at 12:36 pm
http://www.stuff.co.nz/business/market-data/2994091/The-IPO-gravy-train
This is like Feltex all over again.
October 23rd, 2009 at 1:07 pm
Hey AndrewJ — as they say sarcasm doesn’t work well in email and so too here.
I am actually fairly up to speed on what you mentioned. In the US of course they use RBGH which increases production etc.
Regional shortages would be the only reason to create a new dairy farm in my opinion and I am not convinced.
I would use raw milk if I could. The raw stores in Los Angeles are really busy these days and I tend to agree with many of the proncipals of the raw movement.
Aside from the omega 3 health claims from grass fed beef. I know some people think it tastes better but I believe corn fed will always be better in most peoples mind especially those with money
October 23rd, 2009 at 1:16 pm
Lew
http://www.stuff.co.nz/business/industries/2993058/US-dairy-prices-keep-safe-distance
If 1% of US dairy farmers produce %30 of the milk then there must be some seriously big producers with some serious clout, they are also getting big fast.
I not sure that Watson is going to USA only to milk the cows.
I agree there appear to substantial health benefits, to going back to ‘Raw Milk’ supplied by local farmers.
October 23rd, 2009 at 1:58 pm
There are serious health risks with raw milk, and for this reason its sale is illegal in much of the US.
Although the US is a big country, and has areas which are superficially similar in climate to parts of NZ, there are actually surprisingly few spots where pasture can grow year round and compete with low-cost grain as a feed source for milking cows.
Just as there are good cereal cropping areas in NZ, but they find it difficult to compete with the US, Canada or Australia.
But that is not to say it is impossible, so Watson may yet show the US something.
October 23rd, 2009 at 2:10 pm
Tussock
My family have been drinking A2 raw milk for ages, so far no obvious problems.
October 23rd, 2009 at 2:39 pm
I guess Watson will find another round of desperate suckers to back him. However if he does get it up and running I hope he does a better job than many of the corporates here.
Its interesting that instead of swooping in and grabbing some of those that are in dire staits here, he prefers to start afresh in the USA. What so many are finding everywhere in the world, converting to dairy is a very expensive excercise, getting expected production doesnt happen for a long time.
I am sure he would invest in NZ genetics for a grassfed business.
October 23rd, 2009 at 2:42 pm
Tussock – it would be more correct to say there are potential health risks with raw milk. If it is handled properly, there is no risk at all. The health benefits are significant…unless you’re lactose intolerant of course.
SFF performs brilliantly again:
http://www.stuff.co.nz/business/industries/2994860/Silver-Fern-Farms-posts-16pc-profit-rise
October 23rd, 2009 at 2:49 pm
As something of a layman, I don’t see how short selling is legal.
Surely if i sell something that i don’t own, whether its shares, Bernard’s car, or the Waitara Valey circa 1841, then that is theft or conversion?
What am i missing here?
October 23rd, 2009 at 2:50 pm
For those naysayers that still don’t believe me that there are plenty of untapped oil reserves in the US here is an interesting tidbit on China looking to drill in the US.
http://www.latimes.com/business/la-fi-china-oil22-2009oct22,0,2776603.story
Why would they want to do that if the US is dry? My point is that why tap your reserves when your oil can be found under other people’s sand?
October 23rd, 2009 at 3:07 pm
Greg P
There are many reasons. But I’ll try to make a case that there is short selling everywhere.
If you buy a concert ticket, there is no guarantee that the concert will take place. When you buy an Airplane ticket they actually do something worse. They overbook. They will often sell more seats than are on the plane because there will be cancellations. Sometimes people get bumped. And there is no guarantee you will get the flight when it was scheduled.
When shares are sold short, they actually give you the shares you own them and the short seller borrows from someone else to give them to you. A current controversyis when people sell ‘naked’ meaning they don;t have an agreement in place to borrow those shares in order to deliver them to you.
October 23rd, 2009 at 3:10 pm
I am sure Eric Watson won’t be able to just setup another finance company to bankroll this. He has already cause a lot of stress for NZ mum and dad investors with Hanover finance, I hope he never returns to NZ.
October 23rd, 2009 at 3:29 pm
Les Rudd Says:
#3 – yes, ‘Let’s look again at monetary policy’ – why not?
http://www.interest.co.nz/ratesblog/index.php/2009/10/23/opinion-why-the-government-must-be-serious-about-serious-reform-in-budget-2010/comment-page-1/#comment-43096
Do you understand why not now?
Les it seems either Monetary policy is boring or done its dash in interest.co.nz.
Sadly if there was only one policy I could change in New Zealand this would be it.
People don’t understand that it’s the cancer that eats away at our economy and you can never stop it unless you “cut it out” completely.
October 23rd, 2009 at 3:36 pm
I can honestly say I have bever been invited to stay at Tim’s place…
“Tim Brown hits back at the “conniving, tightfisted Wallys” who have dossed at his home over the years” The NZ Herald
October 23rd, 2009 at 3:54 pm
Selwyn – for the same reasons we are unlikely to see effective rebalancing of our tax system, we are unlikely to see any effective change in monetary policy – that kind of reasoning will bankrupt the nation, very effectively. I believe our government institution surely must know this, but I do not understand why they will not act to remedy the situation.
Does anyone?
October 23rd, 2009 at 4:07 pm
John Key “central bankers favourite son” … like that one
October 23rd, 2009 at 4:11 pm
“I do not understand why they will not act to remedy the situation.”
Because that would conflict with the interests of the banks. Read between the lines when Bollard speaks and its obvious.
“Elsewhere, he virtually ruled out using the Reserve Bank’s capital adequacy powers to force banks to slow their lending to property by requiring they put aside more capital. He said such tools were unsophisticated and very difficult to use in any cyclical sense.”
http://www.interest.co.nz/ratesblog/index.php/2009/09/10/rbnzs-bollard-hopes-housing-investment-tax-reform-might-help-rebalance-economy/
October 23rd, 2009 at 4:32 pm
Watson must have seen Food Inc. Revolting.
October 23rd, 2009 at 4:34 pm
If there’s one thing Eric Watson know’s it’s how to pick winners
The Warriors
Shane Cameron
Hanover
Nicky
Oh and he smashed Russel Crowe in the toilets too.
October 23rd, 2009 at 4:41 pm
A fool and your money are soon parted
If you can skim a little off the top then you become an icon, a mover and shaker.
Unfortunately they call it “stinking rich” for a reason.
October 23rd, 2009 at 4:43 pm
With Firestone set to close the CHCh factory, will we be able to import the same tires???
October 23rd, 2009 at 4:57 pm
Wally
Is this in the news? How many jobs are affected?
October 23rd, 2009 at 4:59 pm
neil c – noted, err, think you might be onto it:
http://www.interest.co.nz/ratesblog/index.php/2009/10/23/opinion-reforms-do-not-address-banking-systems-core-problem/comment-page-1/#comment-43154
Cheers, Les.
October 23rd, 2009 at 5:03 pm
Grandy : plant to close , 275 jobs lost, at end of year . Firestone is owned by Bridgestone Group . 600 jobs ( whole factory ) to go in Adelaide S.A. too .
October 23rd, 2009 at 5:12 pm
Thanks Roger. This is a manufacturing company that could contribute to our real economy when they export the products, but….. is high NZD one of the reasons that affected external demand or what, anyone know the reason? How could NZ create another 200 plus jobs in the productive/tradeable sector for this affected group?
October 23rd, 2009 at 5:17 pm
Grandy : If we were to list the company closures , of the last few years , the jobs lost , the exports lost ( i.e. extra imports now ) , well , one could be forgiven for turning to the bottle …………. That’s the excuse I give the child-bride for my being a drunken lush ! ( I suspect that it is not just that our dollar is high , but that it whip-saws up and down so erratically , gotta hedge to guarantee export receipts )
October 23rd, 2009 at 5:20 pm
No worries at all…when we all become greenies we will be riding Jonkeys.
October 23rd, 2009 at 5:21 pm
Jonkeys …………. nyuk nyuk , chortle chortle ! ……….. Good one .
October 23rd, 2009 at 8:51 pm
Roger “If we were to list the company closures , of the last few years , the jobs lost , the exports lost ( i.e. extra imports now ) , well , one could be forgiven for turning to the bottle …………”
Ye fair comment Roger, where does it end; Firestone, Navman, F&P, Irvine tools, on and on.
Could someone get face to face with Mr globalisation, Mike Moore, and ask him how this is all supposed to work again.
October 24th, 2009 at 1:39 pm
Having just visited a few exporters in the last couple of weeks I can tell you its not over. There is no reason, not one, for any non primary exporter to stay in New Zealand.
So we better think that through as logic almost always wins in the long run.
If its not logical for me to have my businesses in New Zealand then over time in the interests of shareholders and shareholder vlaue they will migrate to sunner shore. Then the question has to be asked who pays the interest on the national debt and what with.
Want a sugar diet?, well you will die early from heart dieses or diabetes complications. So it is with a sugar enriched economy (foreign debt funded consumer spending), as this will bring about a premature end to our economy and specifically our economic sovereignty.
October 24th, 2009 at 1:56 pm
Selwyn,
Are those exporters you visited not taking any action or march to the street? How could their voice/problems be heard by the general public? The problem is that we have been hearing news every now and then on property prices/sales, but not much about exporters through the media. The exporters might have to do much more to get the message across. The real economy needs them.
October 24th, 2009 at 9:02 pm
@Selwyn: There is nothing to do, somehow ppl think Bollard or The Govn can wave a magic hand and it will all be grand…not without crippling NZ…and only a short term effect….the only 2 choices are; a) ride it out, or b) really massively print NZD and then use it to buy USD….and we are talking tens of Billions….it isnt peanuts and it isnt long term…
October 24th, 2009 at 9:28 pm
@Troy: I dont believe you (about the un-tapped oil….) in fact I find your claim incredible given the “drill baby drill” mantra of the GOP…and even Democrats…One clear point against your claim (if the “drill baby drill” wasnt enough) as far as I am aware the USA has the most wells in the world…thats a lot of ppl doing a lot of drilling….there is no way what you suggest could be hidden….in fact I would go as far as to say you hypothesis ia farcical…
regards