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US eyes real estate as a money laundering channel; China's power slips; China cuts reserve ratio; Aussie personal tax OECD's highest; UST10yr 1.43%; oil up and gold down; NZ$1 = 67.5 USc; TWI-5 = 72.4

Business / news
US eyes real estate as a money laundering channel; China's power slips; China cuts reserve ratio; Aussie personal tax OECD's highest; UST10yr 1.43%; oil up and gold down; NZ$1 = 67.5 USc; TWI-5 = 72.4

Here's our summary of key economic events overnight that affect New Zealand with news we have an Omicron bounce in markets today, reversing the Omicron fall over the past ten days. Markets seem convinced the new virus strain will not upend things in the way they first feared.

There is a general risk-on mood in most global markets, although that is not evident in Asian markets.

In the US, a senior Treasury official said it is about to crack down on "criminals, kleptocrats and others" paying cash for houses to launder money as part of a broader anti-corruption drive.

German factory orders slumped in October after a small rise in the prior month. This was a retreat far sharper than expected. In was driven by a sharp fall in export orders, which were down -13% on an annualised basis.

An updated ranking of the 'power' influence among 26 Asian-related countries shows that New Zealand slipped -1 place to 13th, above Taiwan, but lower than Vietnam. Australia is #6 and slipped as well. The big mover is China #2 which recorded its first-ever retreat and is now further behind the US which is still #1 and rising. Overall, Asian power fell in 2021 on a global basis.

In a meeting with the head of the IMF, Chinese premier Li Keqiang was at pains to point out that they will likely cut their reserve requirement ratio (RRR) rates if the property slowdown requires policy action and their overall economy staggers for much longer. They are currently focused on keeping liquidity levels elevated. And overnight, they did, reducing the RRR from 8.9% to 8.4%. It should release ¥1.2 tln in funding (NZ$280 bln) to help their sagging economy.

And Evergrande shares fell -19% in yesterday's trading, taking the fall from July 2020 to -93%.

According to updated OECD comparisons, Australians are paying more personal income tax as a share of government revenue than any other advanced economy, except for the high-taxing Scandinavian welfare state of Denmark. New Zealand is the 5th highest in these comparisons. (See page 8.)

In Australia, pandemic cases in Victoria were 1073 reported yesterday. There are now 16,503 active cases in the state - and there were another 6 deaths yesterday. In NSW there were another 208 new community cases reported yesterday, a jump, with 3,036 active locally acquired cases. Queensland is reporting zero new cases. The ACT has 6 new cases. Overall in Australia, just over 88% of eligible Aussies are fully vaccinated, plus a bit under 5% have now had one shot so far.

The UST 10yr yield opens today at 1.43% and up +7 bps overnight and rising. The UST 2-10 rate curve starts today a tad steeper at +78 bps. Their 1-5 curve is also much steeper at +93 bps, while their 3m-10 year curve is up at +135 bps. The Australian Govt ten year benchmark rate has risen +2 bps to 1.57%. The China Govt ten year bond has fallen a very sharp and unusual -8 bps to 2.84%. The New Zealand Govt ten year is also lower, down -5 bps at 2.30%.

On Wall Street, the S&P500 has started their Monday session up +1.1%. Overnight, European markets all rose about +1.5% in their various sessions, Yesterday Tokyo ended down -0.4%, Hong Kong was down -1.8%, and Shanghai closed down -0.5%. The ASX200 closed flat while the NZX50 shed -0.6%.

The price of gold will start today at US$1778/oz and down -US$6 overnight.

And oil prices are up +US$2 at just over US$68/bbl in the US, while the international Brent price is up a bit more and now just under US$72/bbl.

The Kiwi dollar opens today little-changed at 67.5 USc. Against the Australian dollar however we are softer by -½c at 95.8 AUc. Against the euro we are also unchanged at 59.8 euro cents That means our TWI-5 starts today at 72.4 and little-changed.

The bitcoin price has risen to US$49,182 and +1.3% firmer than the level at this time yesterday. A survey by Grayscale says that more than half of all bitcoin holders came to the crypto within the past 12 months. Churn is very high. Volatility over the past 24 hours has been moderate at just over +/- 2.5%.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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45 Comments

more than half of all bitcoin holders came to the crypto within the past 12 months

The BTC equivalent of FHBs. Like lambs to the slaughter.

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Hmm. Not sure that comparing a highly liquid BTC spot position to a FHB's illiquid, (over-)leveraged, real estate position is valid.

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BTC is worse because it's going to zero this time.

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Correct. The first is a zero-sum game, cash-out-able only while belief hold up.

The second is an over-pumped ponzi, pumped for more than a decade by those who had no idea what hit them in 2007/8.

That bubble must burst, and the longer it is pumped, the bigger the bang when it goes. I doubt it will hold together, this time.

And, if the system folds, bitcoin is as gone as RE digital representations. Different strings, same parachute. The best thing a FHB can do, is hold cash (not digits in an account), hope it will be recognised for a while post-event, and wait for the 'correction'.

Or form a relationship with a paid-up owner, of course........

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I have held cash going into many a crisis - its rarely worked out well for me. Cash is easily devalued to avoid a collapse in asset prices.

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This is correct. Cash is the very last thing you want to be holding. At the first hint of trouble Adrian Orr and his ilk have their sticky fingers in your pockets.

Gold or crypto are the antidote to central bank debasement.

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A basket of currencies (multiple fiat, crypto and precious metals) would be the best hedge in the event of a major collapse. You can't completely avoid that kind of collapse, you just want to end up slightly better off than most.

Also, worth holding assets that meet basic needs e.g. productive land, water bore, energy-efficient and low-maintenance housing, solar panels, bicycles

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Fiat is going to zero.

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Mathematically guaranteed. As Greg Foss would say, do some basic maths you squids. 

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This. I'd like to see some examples where holding cash has actually worked out well. Very rare indeed.

It's quite striking really how poor an investment cash is. 

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Who said anything about 'investment'?

I was talking about post-ponzi collapse - so how to trade locally.

So many folk take so much assumptive baggage into so much discourse.

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Pieces of 8 - Pieces of 8 - Squawk!

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A house has an intrinsic value if the proverbial hits the fan, you can find shelter in it.  If things are really bad you may have to cram a lot of people in it, but you are still protected from rain, cold and other people. Bitcoin on the other hand… 

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and that house's value is about 90% less than current prices

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  "Evergrande shares fell ....taking the fall from July 2020 to 93%." I'll bet there's been a lot of dip-buying during that time, and probably still is today.

How much is any asset worth? What someone else wants to, and can, pay for it.

How much is residential property worth in Queenstown if, for what ever reason, tourism doesn't return? "But it will, and if it doesn't, they'll find another industry to utilise the city!". Of course....so buy any dip. (Contagion Effect - what happens to owners who live in, say, Auckland if their QT property collateral falls in value? The same as EG - other things have to be liquidated to meet banking requirements)

 

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And if EG ends up bankrupt?

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If ?!

Its debt is currently being assumed by other 'willing' parties. I reckon that process continues until, just like Jack Ma and Tienanmen Square, it's just a hazy memory of what once was.

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Agreed. Going to be a lot of debt between other property development companies over there to be swallowed as well. 

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Another industry to utilise the city? Can any one suggest one? Better build a new big wide bodied jet airport just in case then?

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But where?! You've got to love enthusiastic diversification.

In 2020, a mystery man spent $45 million on 450ha of farmland in Tarras. He paid twice market value and told the vendors that it was for agriculture.

https://stopcentralotagoairport.com/

 

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And all on the authority & behest of a Mayor & City Council and government that with much fan fare declared CLIMATE EMERGENCY. The question arises then just how much the ordinary folk  of NZ are going to have to cough up to compensate for the carbon footprint of construction & ongoing running. It is hopeless, building cycle lanes and crowing about that whilst sanctioning a huge industrial operation on pristine rural land. Two questions. Where the heck is the sanctimonious Green Party on this and how come on this vast tract of land convenientlythere is not one square metre of SNA?

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and by mystery man you mean Christchurch Airport, and by them you mean CCHL, and by them you mean 75% Christchurch City Council and 25% the Crown. So each Chch resident paid about $900 and the rest of NZers paid about $25.

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Fed/Powell has been forced to admit that he was wrong and that Inflation is not Transitory, so will now Mr Orr who was parroting fed too come out in open and apologize.

https://www.youtube.com/watch?v=S5uwyNXB2Hs

USA being Big and having Diversify Economy may still come out of the crisis but what about tiny nation like NZ where only economy is Housing and PM now too asking people to stay away from speculative investment (Housing...happy realization) and concentrate on productive......What the hell.................are you not the one who along with RBNZ went all out to promote and supporting even now and expecting........

Jacinda Arden is confused, how come no media picked it up.

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Has she asked people to stay away from speculative investment recently?

I missed this 

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There is an important difference between being wrong and deliberately lying.

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Problem parroting the Fed, is the US have the world's reserve currency.  US has the ability to export their inflation.  Foreign hedge funds even purchase their MBS's.  And if they won't buy em, the Fed will.  Perhaps Mr. Orr could start purchasing bank mortgages, to prop up the housing prices and really 'Parrot the fed'.  

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https://www.trademe.co.nz/a/motors/cars/land-rover/defender/listing/3367263806

It seems like the value of money became meaningless since Covid. Just whack another zero on the end for good measure, why not.

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That price is not a joke apparently! 350k for a second hand vehicle. 
Well, houses in the millions, cars in the 100s of thousands, and coffees at $10, …

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And who pays tax on any of that? The barrista.

"Where did that money come from, sir?" - "I sold my car on TradeMe. Look!"

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Serves them right too. If you choose to work rather than speculating you deserve to be the only one paying tax.

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Assume this is sarcasm but it is probably the shortest possible description of the problems of NZ

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It really is. We've become a society of a few working folk paying for NZ's services while the speculators mooch.

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And anyone who raises the issue is just envious of them, and you should just be smarter like them and have purchased back in the 90s. Back when I was 4 years old.

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You will find that printed FIAT currency has boosted the classic car market like all other speculative assets, even rust prone old Fiats are now the price of a new car or more.One is born every day...

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Oneroof... but still an interesting read.

New Zealand house prices: What went wrong?

https://www.oneroof.co.nz/news/40593

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I don't understand, there's been a huge creation of wealth making house owners richer than they ever dreamed and the "wealth effect" is keeping NZ afloat. Isn't this exactly what the industry wanted?

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Two side to a ledger. Wealth on one, poverty on the other. Increasing house prices for a wealth effect is BS.

However it suits those at the top, thus the narrative is pumped - unchallenged mostly.

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Pumped, unchallenged and accepted by plenty of people who should have said something but didn’t because their own house was going up.

 

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Brilliant article. I wonder, where to from here? Did Japan and Ireland have similar reasonings before their corrections?

 

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The most interesting aspect I find in the article is the disingenuousness of many of the 'experts' cited. Orr mentions factors affecting house price and affordability but makes no mention of a lack of regulation. They talk about LVRs being aimed at investors but FHBs being hit hardest. Well - DOH! Everyone who comments on this site saw that coming before it hit! 

The stunning thing about this article is the sheer incompetence of so many of the people who controlled or influenced aspects of the market.

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Incompetence or willing and cynical behaviour? Or a bit of both?

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Good questions - the cynical would suggest the worst. But I'd suggest that for most it would be naivety leading to incompetence.

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An updated ranking of the 'power' influence among 26 Asian-related countries shows that New Zealand slipped -1 place to 13th, above Taiwan, but lower than Vietnam.

 

Seriously, good ol' NZ is behind Vietnam?

Looks like oil is coming back with a vengeance.

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A bit of a blow to some beehive egos. Taiwan doesn't want to be too high on that list. It'd be the equivalent of pulling the tiger's tail!

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