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Top 10 at 10: Key eyes tax reform (really); 2010 year of sovereign debt crises; Hormonally adjusted traders; Dilbert
December 8th, 2009Here are my Top 10 links from around the Internet at 10am. I welcome your additions and comments below or please email your suggestions for Wednesday’s Top 10 at 10 to bernard.hickey@interest.co.nz Our project costs never blow out…
1. Nitty Gritty to come - John Key has confirmed the government will look at changes to the tax system in the lead-up to the 2010 budget, NZPA reported. Here are the quotes, which are mildly encouraging.
“I think some of the challenges they have raised and the solutions they have proposed have merit,” Mr Key said at his post-cabinet press conference.
“I think you have to accept there are some holes in the tax base and I think you have to accept we have to make sure our tax system is fair and equitable to all.”
“We haven’t got down to the nitty gritty yet. That will be early in the new year as we look to put together the 2010 budget.”
2. It’s getting ugly now – Here’s a little snippet from Staten Island News about the tactics many US debt collectors are using on delinquent home owners. This one is painful because it freezes bank accounts and grabs pay cheques before they are paid. HT Troy Barsten via email.
A new foreclosure tactic, whereby lenders or debt collectors holding second mortgages freeze bank accounts or garnish pay checks of already struggling homeowners, is emerging and making it even more difficult for people to hold onto their homes.
Lawyers for troubled Staten Island homeowners say they are beginning to see examples of clients who go to the bank to take out money and find that their accounts have been frozen or wiped out by other banks or debt collectors — the entities holding second mortgages on houses already in default on the first and primary mortgage. Some are learning the lender or debt collector has already gone to court and secured a judgment to garnish paychecks.
It’s a move more in line with the traditional debt collection industry, which typically targets credit card debt, and it’s dragging the house and what little cash reserves people often have into the foreclosure battleground. Experts say it’s an end-run by second lien holders around the traditional foreclosure process, which involves only the first mortgage holder and provides important legal protections for the homeowner.
“It’s a fast and dirty process,” Margaret Becker, lead attorney with the Homeowner Defense Project of Staten Island Legal Services in St. George, said of the new trend.
3. Managers rule – James Kwak at Baseline Scenario points out Bank of America’s decision to repay its bailout loan early has a lot more to do with managers trying to escape the restrictions on bonuses than with any real sign of bank stability or desire to serve shareholders.
Buying back stock costs money — real cash money. Why would a company ever do such a thing? The textbook answer is that a company should do it if it doesn’t have investment opportunities that yield more than its cost of capital. The cash in its bank account, in some sense, belongs to its shareholders, who expect a certain return. If the bank can’t earn that return with the cash, it should return it to the shareholders. In this case, though, the interest rate on the preferred shares is only 5%, which is far lower than usual cost of equity. In fact, Bank of America just issued $19 billion of new stock in order to help buy back the government’s preferred stock. The cost of that new equity (in corporate finance terms) is certainly higher than 5%. In other words, Bank of America just threw money away.
Paying back its TARP money also has the effect of making Bank of America weaker. From a liquidity perspective, it now has about $20-25 billion ($45 billion minus $19 billion raised from new equity minus a few billion from other asset sales) less cash than it did before paying the money back. From a capital perspective, using cash to buy back preferred shares reduces your Tier 1 capital ratio.So why? The answer is to avoid executive compensation caps (so it can find a new CEO)
In retrospect, the executive compensation caps inserted by Congress into the stimulus bill back in February are having a perverse effect. Because the caps applied only to financial institutions that took TARP money — and they applied much more heavily to institutions that received “exceptional assistance,” like Citigroup and Bank of America — it tilted the paying field even more heavily against them. This gives them an incentive to take steps that weaken their financial condition, even as conditions in the real economy (to which Bank of America is highly exposed) remain bleak.
4. New bailout? – It seems Barack Obama and his Democratic colleagues in Congress are keen to spend the US$200 billion left over in the TARP bank bailout fund on a new stimulus package, ZeroHedge points out. Heaven help us. The cartoon below is more appropriate. HT Gertraud via email.
5. Sovereign debt crisis – Deutsche Bank’s strategists say 2010 could be the year of the sovereign debt crisis, FTAlphaville points out. The charts below are fun. Here are the quotes from Deutsche’s Jim Reid:
In late 08/09 the authorities had little to lose in aggressively attempting to stave off a Depressionary cycle. So far they deserve extremely high marks. However 2010 could be a transitional year between heavy intervention and the paying of the bills. A return to positive global growth should help but we would expect more volatility in 2010 than in H2 2009.
Back to Sovereign risk, history is littered with examples of inflation, devaluations and Sovereign defaults after financial crisis. One might wonder why this time should be any different. Sustainability is the key word. As soon as markets doubt the sustainability of a country’s deficit then we have a problem. This is why it’s important that in 2010 the authorities provide a credible path for future fiscal discipline, even this path involves many years of adjustments. One of the largest challenges will be funding the still large global government issuance in a world with less QE. QE limited the discussion on the impact of crowding out in 2009. Will we be as fortunate in 2010?
6. Cracking yarn – Matthew Goldstein at Reuters has uncovered an investigation by the FBI into one of the world’s most powerful and secretive hedge funds (SAC Capital) that is full of juicy (and salacious) detail that I will do my very best to repeat. The story focuses on one cop, BJ Kang, and his battle with SAC’s Steven A Cohen. The detail about how this hedge fund operates and the take-no-prisoners attitude is startling. Here’s a …er…taste, citing court documents Goldstein got hold of:
Kang interviewed former SAC analyst Andrew Tong, who had already become a tabloid sensation — not to mention an embarrassment to SAC. In a lawsuit earlier that year Tong had charged that his male supervisor, Ping Jiang, then a top SAC trader, forced him to perform oral sex on him before completing a trade, according to people familiar with the investigation and court papers. Tong also alleged Jiang ordered him to take female hormones to turn him into “the ideal analyst/trader,” combining both male and female characteristics, the court documents note.
The strategy didn’t work and SAC took a $3 million hit, which Tong claims Jiang ultimately blamed on him. Tong alleged that Jiang used the loss as a justification to fire him and that the real reason for his dismissal was his decision to stop taking the female hormones and engaging in “sexual conduct with Mr. Jiang,” the documents say.
“Steven Cohen only wants us to make money, he doesn’t care or want to know our secrets to make money — SAC doesn’t need to know and doesn’t want to know,” Tong said in the filing, quoting one of Jiang’s instructions to him.
7. Bailing out – Could the cash-strapped Japanese government sell US$100 billion of US Treasury bonds to help pay for its own heavy domestic spending? This rumour has been doing the rounds in recent days. The Japanese have denied it, but they deny everything until they announce it.
If true, this could prove the catalyst for the mother of all selloffs in the US Treasury market, which would push up interest rates around the world. The Japanese have been the biggest buyers of Treasuries over the last year, dwarfing even demand from China, Seeking Alpha pointed out with a Bloomberg graphic below.
Market News yesterday reported speculation that Japan, the world’s second-largest holder of Treasury debt, will tell the U.S. it plans to sell $100 billion to finance domestic spending. Prime Minister Yukio Hatoyama is set to announce his first stimulus package today, and has said he won’t increase domestic bond sales to fund it because of record government debt.
“There’s absolutely no such plan right now,” Hirano told reporters today in Tokyo. “That kind of talk often surfaces at this season.”
Japan bought $20.3 billion in Treasuries in September to raise its holdings to $751.5 billion, while China purchased $1.8 billion to increase its total to $798.9 billion, the U.S. Treasury Department said on Nov. 17.
“Japanese investors — public and private — have bought $125 billion of Treasury bonds in the first nine months of the year,” New York-based Brown Brothers Harriman & Co. global head of currency strategy Marc Chandler wrote yesterday in a note to clients. “While we too suspect the rumors are likely unfounded, the Japanese fiscal situation is in poor shape and the government wants to curb new JGB issuance.”
8. Grecian 2010 - Greece could be the next sovereign to default and cause grief inside the European monetary and banking system. The FT.com points out the growing nervousness around Greece’s parlous budget situation.
The spread between the yield on the 10-year Greek bond and the benchmark German 10-year note widened to 182 basis, up from 174bp late on Friday, as investors remained concerned over the outlook for Greece’s economy.
On almost every measure, Greeks have been living beyond their means. The current account deficit reached almost 15 per cent of gross domestic product last year, making the US deficit of 5 per cent look modest. External public debt now exceeds GDP.
With hindsight, it is clear that a lax fiscal policy was also pumping up an economy based largely on just two sectors – shipping and tourism. Now, “Greece’s mix of problems is unique in the eurozone – a large budget deficit, rising debt and an unsustainable pension system”, says George Pagoulatos, a professor at Athens Economics University.
Since joining the euro, Greece has regularly flouted the deficit and debt limits set in the zone’s “stability and growth pact” that is meant to correct for the lack of a single eurozone fiscal authority. Scant progress has been made in reforming the country’s public sector, which added 50,000 mostly low-skilled employees in 2004-09. Public sector wages are again set to rise, by 5-7 per cent in 2010.
And here’s the anecdote to go with it.
Sotiria rarely complains about her workload. At the office where the Greek public sector employee aged in her forties records value added tax payments, supervisors take a relaxed view of breaks for coffee and shopping, she says. If a family member falls sick, she stays home. “I don’t feel bad, because there are always plenty of other people around to cover for me,” she says. “Nobody here has too much to do.”
9. Totally relevant video – It seems a bunch of unemployed Americans are spending all their time making YouTube videos about how the unemployment statistics are misleading. Fair enough.
10. Totally irrelevant (and possibly fake) video – A van drives in the wrong place at the wrong time.
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December 8th, 2009 at 10:55 am
Maybe a few more positive articles Bernard – the end of the world hasn’t hit yet
December 8th, 2009 at 11:08 am
#9; Brilliant! It shows how ludicrous our bureaucratic systems have become, and how detached we’ve become from reality. Lies, lies, lies….
December 8th, 2009 at 11:09 am
The law of unintended consequences dictates that those that are facing foreclosure will now liquidate their bank accounts so that predatory lenders will not be able to freeze their accounts. This will cause a mini bank run making things even worse for the banks that are already over leveraged.
Rinse. Repeat.
December 8th, 2009 at 11:15 am
UK Kiwi
How’s life in the UK for a Kiwi?
Want to come home yet?
cheers
Bernard
December 8th, 2009 at 11:15 am
http://www.stuff.co.nz/national/farming/3131143/Indoor-cubicles-for-cows-planned
Sticking to the knitting, comparative advantage?
Volume-add and no risk mitigation, or value-add with risk mitigation via diversifying export mix?
If we are talking about building factories, why not more of those making products that are more about value-add?
Guess it depends on what you value, and our policy mix?
December 8th, 2009 at 11:32 am
May be UK Kiwi could post us some links with a positive outlook….?
Hard to find…….particularly in the UK.
December 8th, 2009 at 11:42 am
UK Kiwi:
Please come home….. we need your money.
Houses for sale here….. lots of them …… very cheap.
(Does the Warehouse sell houses yet?)
December 8th, 2009 at 11:48 am
#6 I wonder if they used female hormones at Merrill Lynch in the 90’s?
December 8th, 2009 at 11:52 am
I doubt it, stevek, otherwise Cheetah Woods would have been working there!
December 8th, 2009 at 12:16 pm
As a Kiwi living in the UK I can say that life isn’t that flash at the moment:
UK ‘to drop out of top 10 economies’ by 2015
Looks like New Zealand isn’t the only economy in terminal decline. At least one of the main problems in the UK will be solved in less than six months i.e. the Labour government is about to be booted out of office.
December 8th, 2009 at 12:30 pm
#6
If the past 12 months are any guide I’d guess Merrill used castration, rather than female hormones. Although i didn’t know thay had a branch in Dipton too…..
December 8th, 2009 at 12:50 pm
“I think you have to accept there are some holes in the tax base and I think you have to accept we have to make sure our tax system is fair and equitable to all.”
Oh dear, oh dear, oh dear! A politician talking about fairness and equity. Well let’s cross to London and examine one of the latest exercises in ‘fairness and equity’ that has recently emerged from what – effectively – remains New Zealand’s Head Office and ideological command centre.
http://www.express.co.uk/posts/view/141472/Harriet-Harman’s-Equality-Bill-has-nothing-to-do-with-fairness/
RMS New Zealand continues sailing – full steam ahead – towards a collision with the middle class destroying iceberg of hyperinflation and outright property confiscation. The fact that the majority of the ‘nasties’ are below the surface should not should not confuse the view from the crows nest. Do not be fooled by the politicians attempts to ’skirt round’ the issue – the middle class is “going down by the head” and there will be few survivors.
December 8th, 2009 at 1:20 pm
Bernard
Don’t be so harsh on UK Kiwi, I remember that when I predicted that a northern winter and unemployment might cause an influx of homesick kiwis I was roundly dismissed on the somewhat facile basis that they a) wouldn’t because they couldn’t sell their assets for top $/pound and b) The NZ dollar was to high and they would take a loss.
The longer this drags on the more will cut’n'run
Neven
December 8th, 2009 at 1:45 pm
hey u.k kiwi
i understand that you want to hear good news also but essentially this blog is more of a contrarian nature, which loosely means that it’s spin-free!
you can read nzherald.co.nz or stuff.co.nz if you want a spun version of life here in the clucky country but i like this site ‘cos it gives me the facts…i do the rest.
i’d stay where you are anyway ‘cos you’ve got shorter days, lotsa snow and a chancellor of the excheq. called Darling…how can you go wrong!?
December 8th, 2009 at 1:49 pm
Rob …. Stop it
Real Estate agents all around the country are groaning now ….
They’d just managed to find a way of adding “OECD rank 22 kiwi Says” to their databases.
December 8th, 2009 at 1:54 pm
Neven911 – I don’t think the ‘northern winter’ argument has been used about immigration into Britain since the Empire Windrush docked at Tilbury in 1948, with a group of West Indian migrants aboard. Now correct me – didn’t the then Labour foreign secretary reassure the country that the first winter would see them gone? Nothing like a warm welcome of course but, in those days, coloured immigrants were of little use to Labour. How times have changed, and now the white working class is of little use to them! As always with Labour, you are not a human being, you are a ‘unit of political capital’ to be judged exclusively on your usefulness to the cause.
I suspect the biggest threat to Kiwis coming back home is the possibility that Britain could be forced to impose exchange controls on the movement of capital – if Pound Sterling begins to collapse some time hence.
December 8th, 2009 at 2:09 pm
Malcolm
How you forget! What about 1973, sure we had carless days, they had foodless households
Neven
December 8th, 2009 at 2:22 pm
Neven 911 – I was a schoolboy in Britain in the 1970s and I certainly don’t remember foodless households – although many a European would question whether the ‘nosebag’ which my countrymen tend to tuck into (especially in those days) could accurately be described as food!
December 8th, 2009 at 2:29 pm
One of the oxymorons of the culinary world , ” English Cuisine ” .
December 8th, 2009 at 2:38 pm
Roger Thompson said “One of the oxymorons of the culinary world , ” English Cuisine ”
Roger, never were truer words written on this site – hence we all defected to Chicken Tikka Masala!
December 8th, 2009 at 2:38 pm
Someone please help out the old thicko gummy bear sucka : Allied Farmers shareholders have voted ( 92 % ) to takeover Hanover’s debts & assets , by way of a share issuance . How does a micro-cap company with a market value of $ 11 million absorb a property developer with $ 396 m. assets ? Is it ” magic ” , or am I thick enough to be voted ” Village Idiot “……. …… ……..again .
December 8th, 2009 at 2:39 pm
Malcolm – I agree, capital controls are in our not-too-distant future. However, this pales in comparison with the EPA’s just-released ruling that carbon dioxide is a “danger to human health” (along with 5 other gases). Controlling our money is one thing, but taking control of what we exhale…well, what on God’s earth next!
December 8th, 2009 at 2:41 pm
Roger – you’re not the village idiot…the real village idiots are in control of not only govt, but our corporates as well! We’re the “idiots” for allowing them all to rise to the top. It is unbelievable.
December 8th, 2009 at 2:46 pm
Ludwig : How does the ant eat the elephant ? …[ teacher used to ask us juniors ; ....... " using my Grandad's false teeth " .....from the future village idiot ]
December 8th, 2009 at 2:47 pm
Hickey you are a permabear – that is why you are simply not taken seriously by anyone important. Anyone who has a permanent forecasting position is a fool – and wrong 4 times more often than they are right.
December 8th, 2009 at 2:47 pm
hey jolly Roger
watch that Allied finance stock tank south ,within seconds, as soon as the savvy Hanover investors trigger their sell orders and get out with their shirts sorta intact.
that instant exodus will plummet Allied stock never to rise again to it’s former glory…hey 92% Allied voters in favour…are you ready for the wave?
hang on…come to think of it…no Hanover investors would be smart enough to place a future sell order.
if they were they wouldn’t be in Hanover in the first place!!
have you got some , Dodger?
December 8th, 2009 at 2:49 pm
so we assume ,Craig Butler above, that you’re nobody important as you seem to be very serious on this lovely day?
December 8th, 2009 at 2:51 pm
No rob of the north : I got clobbered by many things over the past 2 years ( by the wife , mostly ) but I did avoid the finance company debacle . But I am curious about magic , and this little trick by Hanover / Allied is a humdinger !
December 8th, 2009 at 3:00 pm
@Malcolm: “towards a collision with the middle class destroying iceberg of hyperinflation and outright property confiscation. ” The top 1% it is estimated now own 65% of assets and money, up from 50% a few years back. Its quite obvious the rich and super rich are sucking money out of the real economy to create even more wealth/capital at the expense of the other 99%. This is just the opposite of the (true) socialists of which Greece is a modern day example….ie the balance within society has been lost and this looks bad for the future without correction.
“I suspect the biggest threat to Kiwis coming back home is the possibility that Britain could be forced to impose exchange controls on the movement of capital”
SA does this, they still come though.
A distinct possibility….but not just the UK….I wonder just how far the bankrupcy/ default(s) can go before we have serious social disorder and the like of Obama and Brown are displaced. Then countries voluntarily default and turn inward…putting their backs to the financial and capital world that is now doing more harm than good IMHO. they might as well, serfdom if the do and serfdom if they dont….
regards
regards
December 8th, 2009 at 3:01 pm
Ludwig – perhaps we could have a variation of the old chest x-ray instructions in order to reduce carbon dioxide emissions from man. Instead of the old “breath in – hold – breath out, breath away” routine we could just have Breath in (after paying a tax of course) then hold, hold, hold, hold, hold, HOLD, HOLD HOLD!!!!!
December 8th, 2009 at 3:11 pm
@Craig B: “Hickey you are a permabear – that is why you are simply not taken seriously by anyone important. ”
Absolute cw@p(TM)…
Lets take this in context, those in “power” are; Gordon Brown, Obama to name just two leading examples….of ppl who are “important” and did they see this collapse coming? did Helicopter Ben? or did ex-Pres Bush? Greenspan? Do you re-call any ppl of “importance” calling for this as debt stupidity and fiscal incontinence to cease? or at least be contained? Reigning in the excesses of the banks who are so far (still) over-leveraged its insane?
No….
Right now the ppl who called the right calls are indeed proving to be perma-bears….they are showing significantly better results in accuracy that those of “importance”. Definition of a perma-bear would seem to be anyone who looks out 5~10~20 years and see’s a lost decade or two aka Japan but this time for the entire world.
So carry on taking Valium I suggest.
regards
December 8th, 2009 at 3:47 pm
Fairness and Equity?? Key gets worse by the day. “B i l l K e y G a t e” I say.
“Prime Minister John Key ushered through a special rule change so his deputy, Bill English, could keep his taxpayer-funded self-drive car at his Wellington home rather than his official “primary place of residence” in Southland.”
“Mr Key’s hurried change to the rules for ministers’ perks removed the requirement their self-drive car be based at their primary place of residence. This allowed Mr English to have his car – believed to be a late-model Ford Mondeo – with his family in the Wellington suburb of Karori, rather than in Dipton in his Clutha-Southland electorate.”
http://www.odt.co.nz/news/national/84925/mp-car-rules-changed
December 8th, 2009 at 3:48 pm
Steven, no need for pharmaceuticals. Just watch the West Indies give Ricky Pointing a headache. Far more calming.
December 8th, 2009 at 4:35 pm
“On almost every measure, Greeks have been living beyond their means. The current account deficit reached almost 15 per cent of gross domestic product last year, making the US deficit of 5 per cent look modest. ”
15% does not look too bad next to NZ though.
December 8th, 2009 at 8:50 pm
Actually, if you account ‘natural capital’ properly, we’re all in overdraft. Carbon is only the curtainraiser – it’s going to be funny watching the reactions from the disillusioned followers of the Growth doctrine.
December 8th, 2009 at 9:22 pm
Life is good here thanks Bernard, although a little chilly at the moment. No plans to come home, the same goes with most of my friends. As professionals here we can earn effectively triple what we can back home and don’t have to work our entire lives paying of a very mediocre house in Ponsonby. NZ govt has some work to do to entice us back.
December 8th, 2009 at 10:09 pm
@UK Kiwi
ssshhh, we’ve all gone to sleep….. and didn’t want to hear that either!
December 8th, 2009 at 10:16 pm
UK Kiwi – Good for you. Just one piece of advice….don’t go saving all those earnings in pounds. They’re likely to plummet big time.
December 8th, 2009 at 10:48 pm
Sorry KW, will keep that one to myself next time.
Ludwig – it’s an interesting point. I do feel as though I would be taking a huge loss converting to any other currency at the moment though. I would like to hedge to some extent, but not sure exactly through what. I can’t help but feel also that NZD is heavily over inflated at the moment, I could be very wrong though – we will have to get the currency traders to comment.
December 9th, 2009 at 4:08 am
Buy $A ! The only country in the ” developed ” world which did not go into recession . Amazing ! The Ozzies are on a roll . Bet on them .
December 9th, 2009 at 7:31 am
Gotta look past the Rudd crudd Roger!! Lotsa BS being spread over there. Go to Daily Reckoning and get a free account of the real aus each day.
December 9th, 2009 at 9:53 am
UK Kiwi
As a hedge against the pound we have invested in gold, palladium and silver – buying on the dips. Some Bullion and Goldmoney (not stored in UK vaults), also currencies that have young populations and good growth prospects. The pound will go further south over the long term I think but so will lots of other currencies. We are getting lots of work at present (design/construction) but getting paid is still a slow and painful process. I am sure you are working on a plan B and would like to hear your exit strategy. Ours does not involve returning to NZ post 2012 (have done that nostalgic mistake thing once already). Nothing looks like changing back there fast enough sadly – prime opportunity completely squandered. JK should be deported back here and made to work in the finance industry again.
December 9th, 2009 at 9:58 am
Have too agree Wally – my brother has lived in Oz for most of his life. Looking pretty grim on the Eastern side. Too much spin coming out of there – he thinks they have fallen into the one trick pony trap.
December 9th, 2009 at 8:40 pm
# UK Kiwi Says:
December 8th, 2009 at 10:48 pm
Sorry KW, will keep that one to myself next time.
Ludwig – it’s an interesting point. I do feel as though I would be taking a huge loss converting to any other currency at the moment though. I would like to hedge to some extent, but not sure exactly through what. I can’t help but feel also that NZD is heavily over inflated at the moment, I could be very wrong though – we will have to get the currency traders to comment.
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Gold and silver