Wall Street in full fear mode; market interest rates separating from benchmark rates; China very slow to restart; Covid-19 cases jump in rest of world; UST 10yr yield dives to 0.49%; oil and gold hold; NZ$1 = 63.8 USc; TWI-5 = 68.1

Wall Street in full fear mode; market interest rates separating from benchmark rates; China very slow to restart; Covid-19 cases jump in rest of world; UST 10yr yield dives to 0.49%; oil and gold hold; NZ$1 = 63.8 USc; TWI-5 = 68.1

Here's our summary of key economic events overnight that affect New Zealand, with news a global recession now seems almost certain.

Wall Street has opened the week in full fear mode with a large-scale retreat underway, the worst since 2011. In fact, at one point, the NYSE briefly halted trading for the first time since 1997 to allow traders to catch their breath. Every media outlet is recording the crash, we will focus on what it means for New Zealand. But to set the scene, the S&P500 is currently down -7.5% so far today taking its 2020 retreat to -16% and since the peak to -19%. They are following Europe which was down about -8% overnight. And in turn they followed Asia where Shanghai (-3.0%), Hong Kong (-4.2%) and Tokyo (-5.0%) all posted huge retreats yesterday. Locally, the ASX200 crashed -7.3% and the NZX50 Capital Index fell a more modest -2.9%.

(The US President blamed 'fake news' and the fall in oil prices for the stock market crash. He is also downplaying the threat of coronavirus.)

Benchmark bond yields have collapsed too, to unprecedented levels. The fear that grips markets is one where investors are focused on the return of their money, ignoring a return on their money. And although these benchmark yields are now very low, market interest rates seem to be rising. Junk bond yields are rising fast, reversing their trend, and even investment grade corporate debt yields aren't now falling anything like Government bonds. Essentially risk premiums are rising and for private transactions expect them to rise sharply as investors demand fattened premiums for taking lending risks in this environment.

In China, heavy equipment makers are reporting a -30% drop in the use of their machinery, reinforcing the slow pace of getting industry back to work there.

Australia and New Zealand's exports to China are getting more attention from the world's policy-makers as they will show how fast the world's second-largest economy is recovering. And there are positive signs. But China may no longer be the real economic problem. The world is having the correction/recession it needed to have and the one put off relentlessly by fiscal and monetary authorities. Events are overrunning them and their now-depleted ammunition. The economic clean out has begun. It will end after some considerable pain, but economic fundamentals should be in a better place. The pain is very likely to include substantially lower asset prices.

Meanwhile, the IMF is warning about slow government responses to the intensifying economic fallout. It wants to see bigger, faster and targeted responses from the major economies.

The latest compilation of Covid-19 data is here. The global tally is now 111,400 of officially confirmed cases, up +22% in a week. China's cases are up less than +1% in a week. Cases in South Korea, Iran and Italy are up +165% in a week. The number of cases in the rest of the world are up +260% in a week. Forget South Korea, Iran and Italy - the real explosion in cases is now occurring world-wide. In fact there are now 600 cases in the US (not counting their cruise ship cases) and that is up from 102 a week ago.

The fear has extended to flying and the world's airlines are in crisis mode.

But nothing reveals the flight to safety like the crash in yields for the benchmark US Treasury bonds. The UST 10yr yield is now at just 0.49% which fell -28 bps from this time yesterday, confirming off-market trading yesterday. Remember, this yield was 0.92% on Friday and 1.30% on February 27. The American rate curves are still in that strange transition behaviour we have seen for the past week. Their 2-10 curve is much less positive at +12 bps (after being +26 bps yesterday). Their 1-5 curve is little-changed at +17 bps. but their 3m-10yr curve is still negative, just less so at -2 bps. The Aussie Govt 10yr is down -4 bps overnight to 0.64%. The China Govt 10yr now at 2.59% and down -10 bps overnight to an 18 year low. The NZ Govt 10 yr is down -10 bps at 0.85%.

Gold has actually moved very little, and the small change was actually a fall of -US$3 to be now at US$1,670/oz. Go figure.

US oil prices are sharply lower at just over US$33/bbl and the Brent benchmark is also lower at just over US$36/bbl. Both these are small bounce-backs of about +US$3 from levels we saw yesterday. A year ago, New Zealand was paying US$65.60/bbl.

The Kiwi dollar will start today substantially stronger, in fact at a three week high. It is up to 63.8 USc. The greenback is getting trashed. On the cross rates we are up to 96.4 AUc and a five week high. Against the euro we little-changed at 55.6 euro cents. That means our TWI-5 is now at 68.1 and a minor net gain.

Bitcoin is no refuge and its slide continues and it is down now to US$7,791 and a further overnight fall of -6.0%. It is now near its lows for the year. Other cryptos have fallen just as hard. The bitcoin rate is charted in the exchange rate set below.

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

Our exchange rate chart is here.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

163 Comments

Just hoping the Saudi, Russia price war isn’t the Lehman Brothers equivalent for this downturn... unprecedented day yesterday.

That is the accepted story, but energy is much, much more.

Work it through; money is debt-issued proxy for future energy being available. Nobody worked out that if we cherry-picked the best energy-sources first, it would take more and more energy to get at the ever-lesser remaining energy.

In this light, the 64,000 Petajoule question is what will happen to the worse EROEI sources, particularly fracking. It is interesting that the US commentators this morning avoid these sources, they're all about SA/Russia. Fracking has never turned a buck, even at $80 it probably can't, and they've gone for the sweet-spots first. So it is fracking that will fall here. Whether the US Govt bails it out (with unrepayable debt, as per 2008 and since) is an interesting question. I suspect it will; it's a cheaper option (a less energy-demanding option) than competing/invading/defending globally. That only extends a temporary arrangement, but it could turn free-fall into a saw-tooth descent. While Government - and belief - holds.

Just remember that dollar - or any other form of forward bet - is not underwritten if future energy is unavailable. No energy, no work. No work, nothing done. The energy surplus you can generate with labour (human and/or animal) is so pathetically inconsequential as to be not worth counting.

Which as an aside, tells us that counting 'labour productivity' is bollocks.

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Which as an aside, tells us that counting 'labour productivity' is bollocks.

You do know what labour productivity measures, right?
Because it doesn't sound like you do..As a hint - it doesn't measure actual physical 'work' of a worker..

My point exactly.

And the difference is the difference between reality and economics, as preached.

Our problems, as a species, are 100% physical. The measurements we have chosen to believe, en masse, are not. The widening gap is the only problem in town, and those who measure the 'not' are going to be increasingly out of ideas, and increasingly irrelevant. But I could have told you that from a physical POV - they were entirely parasitic on the physical system. My bet is that we are about to see a major alteration in how we value what various sectors do.

But labour productivity does count the physical...
It counts outputs, which are a function of inputs (capital, technology, etch, etc), and normalises them to give efficiency.
Efficiency is a real measure. I have a sneaky suspicion it's quite an important one across many disciplines, too.

If you want to measure labour productivity by some arbitrary measure of physical 'work', go ahead. But it ignores the intangible.
Not all outputs are 'physical'. To say they are is just a categorical misunderstanding of reality.

Oh yes we do. Oh no we don't.

Make up your mind.

If it's physical, it takes energy. And if your 'output' isn't physical, fine. Just don't expect to buy loo paper or a BMW with it, OK? Because then it IS an expectation of things physical.

Spare me.

I'm not see-sawing. My comment wasn't a contradiction.

If it's physical, it takes energy.
Correct.
However, it takes lees energy than it once did. This is labour efficiency - the man who with the benefit of the intangible (knowledge/technology) now produces 1.5 BMWs per day. 10 years ago, he produced one. This is a result of technology decreasing the resource dependence to produce the components of the BMW and knowledge aquistion/technology that allows him to assemble the vehicle faster.

You always go on about exponential growth of resource consumption, but fail to accept exponential growth in technology. It is a fool's errand that ignores both history and reality.

It's not just a fool's errand - the idea that technology can continue delivering physical-delivery improvements ad-infinitum, is a complete falsehood.

Second Law of Thermodynamics, sorry. Carnot, sorry. Diminishing returns, sorry. Entropy too, ultimately.

Why TF do you think 'productivity' has levelled-off globally? It was only energy efficiencies and/or a trend to slave wages in rule-loose countries, nothing more.

I see where you are going, but I don't think a claim is being made that energy inputs can be continually leveraged via technology.
Also as per nymad, technology adoption / innovation isn't a constant asymptotic curve - it goes in fits and starts.
It's fair to say in recent history though, the lulls between the curves are getting shorter which could give the impression over a shorter timescale of tech being asymptotic.

I think the reasons why productivity have leveled off are more complex than a question of marginal energy/cost efficiency in unit production (i.e. I suspect it's more about diminishing returns for surplus, rather than a pure efficiency problem).

UG - I think it's both.

Productivity is running into thermodynamic limits - it will always take x energy to raise y tons up z metres. It will always take fuel in the tank or you roll to a halt - regardless of vehicle efficiency. And vehicle efficiency is capped. As is the efficiency of society collectively.

Also running, though, are the EROEI descent (giving a reduced net energy and ultimately adding to the rate of energy depletion) and the fact that we have been betting on ever-more energy in the future (minus remaining efficiencies, which we can see tailing-off) and the gap between the bets and the underwrite has been expanding for a decade. The chewing-gum had to snap (sorry, there had to be a 'market correction'). Whether this is the big one, or merely a step down in many, I can't say.

Where the other comment-maker runs adrift is in conflating virtual 'production' with real. Which is exactly the problem, writ large; too many bets, not enough underwrite. You can play a virtual betting forever, pretending you have valid proxy, but at some point the rubber has to meet the road.

Diminishing returns?
That doesn't prove a limit to growth. In fact quite the opposite.
Prove to us all your mathematical prowess and plot log(x). Then tell us about it's asymptotic behavior in the limit.
Hint - When you say diminishing returns, you quite literally imply an infinite growth path. So, I suggest you stop using that term to argue your point..

Why TF do you think 'productivity' has levelled-off globally?
Because of the factors you ignore above. Our measures are dominated by the physical, however, our products are transitioning to the intangible/non physical. If you want to make some spurious correlation between the arbitrary measure of EROI (it is absolute surplus that will ultimately matter) and productivity, go for it. However, don't purport a causal relationship.

Query Nymad; 'however, our products are transitioning to the intangible/non physical" Only for a very small percentage of the whole. this is the service industry. You may refer to internet (wireless) or other services, but for all they must transition to the physical and it is the physical end that PDK refers to. Information, and other services all must have a physical base to be deliverable.

You are joking, right?
The service industry has grown enormously and the technology associated with infrastructure underpinning them has exploded in recent history.

are you saying we can take in each others washing and call it an economy?
you must be an economist

yes and it is that technology which is the physical base on which it pins. As PDK points out it takes energy to provide that and the increasing demand requires the resources to satisfy it. Doesn't matter if it is cleaning, laundry or data; there is still a physical part to the industry.

So true. Energy is such a scarce resource.
We better start planning for the supernova that will obliterate us in 5 billion years time.

"" money is debt-issued proxy for future energy being available "" - I can see what you mean but it is not absolutely true. I traded my career as a computer programmer for money. Clearly money is of no use except for what I decide to trade it for in future. Your statement implies everything I might spend it on has a roughly equal energy component. At present I'm actively considering these choices: holiday in Europe, trading in my jazz-guzzler for something more energy efficient (electric bike or hybrid car), donating to a charity that will buy and preserve native bush.
Studying energy use is very useful in many areas - traditional societies can be ranked by how much physical energy is spent preparing food (the winner being preparing sago taking over 50% of the energy it delivers) and it took the industrial age with machines doing the heavy labour to extinguish the slavery that was a feature of every civilisation.
Maybe we can read your posts and choose to use our money in energy efficient ways (investing in the development of artificial chlorophyl or nuclear fusion).

"An analysis of the energy return on investment (EROI) of natural gas obtained from horizontal, hydraulically fractured wells in the Marcellus Shale was conducted using net external energy ratio methodology and available data and estimates of energy inputs and outputs. ...The analysis indicates that the EROI of a typical well is likely between 64:1 and 112:1, with a mean of approximately 85:1. ..."Some analyses suggest that an EROI greater than 5:1 to 10:1 is necessary for even a limited functioning of industrial civilization"
https://onlinelibrary.wiley.com/doi/abs/10.1111/jiec.12040

From Nature Energy - 2019

"Under many scenarios, fossil fuels are projected to remain the dominant energy source until at least 2050. However, harder-to-reach fossil fuels require more energy to extract and, hence, are coming at an increasing ‘energy cost’. Associated declines in fossil fuel energy-return-on-investment ratios at first appear of little concern, given that published estimates for oil, coal and gas are typically above 25:1. However, such ratios are measured at the primary energy stage and should instead be estimated at the final stage where energy enters the economy (for example, electricity and petrol)."

"Here, we calculate global time series (1995–2011) energy-return-on-investment ratios for fossil fuels at both primary and final energy stages. We concur with common primary-stage estimates (~30:1), but find very low ratios at the final stage: around 6:1 and declining. This implies that fossil fuel energy-return-on-investment ratios may be much closer to those of renewables than previously expected and that they could decline precipitously in the near future."

https://www.nature.com/articles/s41560-019-0425-z

Hi Pluto, what you do with the resource after the 85:1 Marcellus well head is up to you. Your linked paper doesn't include the the back up power plant for when the sun doesn't shine and the wind doesn't blow. Having an idling gas plant/batteries for intermittent renewables comes at a significant cost (just ask South Australia) and is conveniently ignored. If you are going to compare the myriad of options for final stage you have to include the back up power plants/batteries for wind and solar. Cut out the 18th C wind and solar tech and just go nuclear.

From your papers biblio "Results suggest that the industry was a net consumer of electricity as recently as 2010. However, there is a >50% that in 2012 the PV industry is a net electricity provider and will “pay back” the electrical energy required for its early growth before 2020." - and that is without batteries or a back up power plant!

I've heard the EROI on child labour for DRC cobalt is pretty good.

https://pubs.acs.org/doi/10.1021/es3038824

Yeah the Marcellus shale is such a tiny resource. Perhaps you should get in touch with the journal and let them know about their inconvenient data? Yale is so dodgy these days.

I've think he's referring to the way you've singled out a particular natural gas field and then extrapolated this. Wake me up when the global transport system runs primarily on Natural gas.

Pluto, I didn't extrapolate anything. Just highlighted that fracking does have a high EROI in monster fields like Marcellus (and Bakken). To suggest fracking has the "worst EROI" is extrapolated BS but I think you know that. From PDK own links "For 95% of Bakken wells,drilling and fracturing consumes less than 0.5% of lifetime crude output"...
Why do you want to run the global transport system on natural gas when there is plenty of oil? Volvo has a line of natural gas trucks if you're heart is set on it.
Wake me up when you have that paper on the EROI of solar/wind that includes the back up power plant/batteries?
https://gcep.stanford.edu/pdfs/events/workshops/Brandt_Oil_Net_Energy_En...

Cheap oil is actually a boost to the global economy.

Cheap exposes producers as bankrupt
There is no goldilocks zone left which suits both growth and cost of production
We are in a position where all commodity prices must come down (to hold demand) but producers have immovable underlying costs
Economies to scale has been the predominant workaround and its no longer working
We are out of abundant easily available NET energy (of a form which fits existing infrastructure)
its called limits to growth

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Gee David, such a DGM

;(

Look on the bright side David, you can republish your fixed income article as it's probably accurate now :)

Confusing the characteristics of perpetuals with those of term coupon debt is never relevant.

I read “ The world is having the correction/recession it needed to have and the one put off relentlessly by fiscal and monetary authorities.“ and thought exactly the same thing. It seems to be slightly counter to what i thought was generally accepted by David owing to his views on money creation as well.

and for central banks they can blame the virus and pull out the old "no-one saw this coming" line

Yup, part of how things never get fixed. The real culprits, systems or people, always seem to escape the appropriate blame!

Borrow from comrade Xingmow regular input? - Do Not fear.. but fear themselves, China slow start will soon speed up, to re-ignite the world economy, bring news that showering down to Covid19 worldwide, virus? they gone. China lead up in the front, will push down the USD into no longer a dominance currency, world shall adopt China's currency. With those bold steps, the Saudi & Russia that started playing around in the oil market will be put into shame by China, since China will show them that world future mankind, is depends on 'Sharing' cooperate each other, looking after each other for the benefit of all.

ICE were the ones trying to control the oil market, they did very nicely while it lasted.

I'm starting to see this as well. Hopefully something to do with being backed by gold. They haven't been stacking it to play tidliwinks with.

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Yes a crash is always coming, same can be said with the recovery, a bull market and another crash. Predicting what is coming is only useful if one can put a correct date on it.

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If I predict that you're going to get hit by a bus and die tomorrow, but it instead happens on Thursday, does it really matter?

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Yvil is suggesting you will rise again. On the third day, presumably.

Sort of sums up the discussive difference, really.

NZ Dan, Interest is a business website for grown ups

Avoid making an indirect ad hominem comment.

Change NZDan's example to cancer. The oncologist doctor says you have 4-6 months left to live. That information is not useful? (Even if the doctor does not specify specifically say 9 September)

If an oncologist gave you a cancer diagnosis you would very likely want to know how much time you have left even if it wasn't a specific date.

CN, your post above seems to agree with my comment that we need a time put on an event to be useful, that's my whole point. Happy to take your example of health. If the doctor tells you, you will die one day, it's not helpful, same with saying the crash will come one day. Both need a time frame to be useful, the more accurate the time prediction, the better. (same with NZ Dan's silly "you're gonna get hit by a bus" comment, not useful if no time frame, if I know it's next Thursday, I can stay in bed all day and avoid getting hit by a bus)

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Oh good god mate (facepalm).

Oh the irony. Best you get back to digging up and mocking previous posts from Interest.co commentators you have an e-crush on, show everyone how grown up you are.

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What's the bet Adrian Orr and his one trick cronies are busily hatching a plan to pump house prices to save "the economy".

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Adrian Orr, no.
The 'cronies', yes.

https://www.oneroof.co.nz/news/37653

I agree Nomad, that will be the last thing Adrian Orr would want.

The housing market will skid to a halt.

Mate, it only goes one way, you forgot:)?

Every now and then you see some idiot driving the wrong way down a one way street.. carnage often ensues.

Everything will be done to prop it up, which is one reason why I don't see a big crash this year

They may not have enough ammunition to stop it, or choice

I expect banks to tighten while the dust settles and a clear impact on businesses and employment becomes evident

Not for landlords.
Business as usual, we are providing a necessary service

BL, if the RBNZ lowers the OCR, which I think they will, it's not with the aim of propping up house prices, nor is it to "entice new borrowing", it's to improve existing borrowers/businesses cashflow. Propping up house prices will be a side-effect at best

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Yep. That's the narrative they will sell it with.

Exactly - sixty percent of bank lending extended to facilitate the most creditworthy one third of households to buy leveraged residential real estate because the official capital risk weights are at or below 35% is not GDP qualifying productive business friendly.

Time for some to get out from under a rock - Why the banks just want our houses

Would be ideal for the RBNZ to be able to have separate rates for property and business, in this kind of scenario. Lower business costs while avoiding the blowing of property bubbles. Problem is that business borrowing isn't that cheap and all we've achieved is creating massive property debt.

Indeed, or one uses your houses equity to borrow for your business (overdraft). Again underlines the value and security of owing your own house. Those with no house equity are in a tough place if they need capital.

by Cowpat | 6th Mar 20, 4:26pm
If Wall St falls tonight , RBNZ will get the nod and cut OCR Monday morning

Didn't happen Cowpat

Not surprising - Cowpat has quite a history of such things.
His forte is selectively choosing those estimates by RBNZ, bank economist and trolling posters that in hindsight a year or two later didn't eventuate and ridiculing them. He is under the illusion that this makes him particularly astute.

Dow is at 23888 as I write this, and is still in a major bubble.

It had more than quadrupled in value since 2009 and we all know that isnt real

Chaning up the excuses (I.e.virus -> saudi &Russia) is typical sign of a crash , not temp correction. Exactly excuses, not the reasons

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Reason: Too much debt.

Sadly most will blame the Coronavirus when in reality it’s interest rates too low for too long. Bank lending practices far too lax. We will witness the consequences of these actions.

that debt helped pay everyones wages for the last 30 odd years
there was no alternative (except for far lower living standards)
its a one way greater fool ponzi

that debt helped pay everyones wages for the last 30 odd years

One of the spoils of bubble economics. Unfortunately, there is another side once (or if) the party ever finishes. Look at Japan. But at least they have a far more diversified economic base than NZ or Australia, so there are still jobs but the 'money for nothing' lifestyle has gone.

Japan have ONLY limped on for 30 years while the leverage Ponzi expanded across the globe
Their Ponzi is as rotten as anyones

Take some cash out of the bank - credit freeze could be on the cards

already done

Indeed, bank cash holdings have been volatile recently and yet just a tiny fraction of the loan and advances asset base. Hardly enough to facilitate a bank run.

At some stage ( soon?) interest rate yields, are going to soar.
As those who have taken refuge in Government Bonds take liquidity away from the commercial lenders, the only way for them to attract funds will be with significantly higher interest rates - high enough to overcome the fear of investing.
It won't matter what the OCR is; or the BoE and Fed cash rates, the commercial lenders will slash each others throats to get hold of funds that don't immediately funnel into the safety of Government Bonds.

Indeed Had a discussion yesterday about the merits of government bonds.

If interest rates go up, you lose money.

Might be a stupid question, i'm not an expert, but is this due to a reduction in the bank's capital adequacy ratios? While the banks have up until now had a decent buffer beyond the regulatory requirements, an effective "bank run" into bonds can chew this fat away pretty quickly?

So bit-conn is good for what?

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Chewing up a lot of energy in server-farms. A goodly percentage of which is coal-fired. We haven't moved very far from Dickens
:)

So bit-conn is good for what?

A means of exchange / store of value without counterparty risk

"store of value" LOL

Laugh all you like. Regular saving in BTC over the past 10 years has been a great store of value.

The free market going well, It's great how it functions without too much interference.

Oh hang on...hit the first circuit breaker almost on open. Could hit a second?

It's the exchange version of privatise the profits and socialise the losses.

The market will get over it.

The market will get under it. This market isn't leaping any hurdles anytime soon.

"Dr. Bruce Aylward, of the W.H.O., got a rare glimpse into Beijing’s campaign to stop the epidemic. Here’s what he saw.

"This is the Wayne Gretzky of viruses — people didn’t think it was big enough or fast enough to have the impact it does.

...That Guangdong survey also turned up almost no one under 20. Kids got flu, but not this. We have to do more studies to see if they get it and aren’t affected, and if they pass it to family members. But I asked dozens of doctors: Have you seen a chain of transmission where a child was the index case? The answer was no.

...Are the cases in China really going down?

I know there’s suspicion, but at every testing clinic we went to, people would say, “It’s not like it was three weeks ago.” It peaked at 46,000 people asking for tests a day; when we left, it was 13,000. Hospitals had empty beds.

I didn’t see anything that suggested manipulation of numbers. A rapidly escalating outbreak has plateaued, and come down faster than would have been expected. Back of the envelope, it’s hundreds of thousands of people in China that did not get Covid-19 because of this aggressive response.

...Is the virus infecting almost everyone, as you would expect a novel flu to?

No — 75 to 80 percent of all clusters are in families. You get the odd ones in hospitals or restaurants or prisons, but the vast majority are in families. And only 5 to 15 percent of your close contacts develop disease. So they try to isolate you from your relatives as quickly as possible, and find everyone you had contact with in 48 hours before that.

https://www.nytimes.com/2020/03/04/health/coronavirus-china-aylward.html...

This report from Dr Aylward is an amazing read, i certainly pity the US because it will never perform in the same way and will be totally overcome by this as a result, China has now in my mind become a place to be honoured and revered for its unblinking dedication to resolving the issues. I hope NZ govt takes serious note here and gets its act together accordingly. I repeat the link here, make sure you read it in full.
https://www.nytimes.com/2020/03/04/health/coronavirus-china-aylward.html...

Yes well worth reading and shows the power of the State. It also shows how exposed the US and why they will be hit much harder.
Is it too silly to suggest history might prove this to be a spark that leads to a turning point in global power?

Glossing over fact the germ research lab was located next to a food market in a seriously corrupt country. Also the out break was covered up - except for the neighbouring military installations - leading to needless deaths and a global pandemic...

This is by far the best thing I have read on Covid-19. The Chinese did a lot of things right, the scale of mobilisation is astonishing. The bad news is that this virus is severe, much worse than the average flu. The good news is that kids are not just asymptomatic, it really does seem as if they are much less likely to catch it.

I read somewhere patient one in Italy is a 38 year old marathon runner. So being young and fit is no case for complacency.

Sueveying the carnage this morning over my cup of tea I hope the world is better at managing recessions than it is viruses.

Storing a 100,000$ deposit in a million dollar home, does not make one a millionaire....nor does the whole country trying it on.

Paying a Politician and a Banker over the odds to "Fix' the problem is a fate worse than death for a so-called..."E-conomy"...especially in a falling market.

A recession is of their own making......not mine.

Price crash at next dairy auction and NZX heading to 6000 points.

ASX futues showing 11% perecnt drop today plus yesterdays drop.

It sucks to be sitting on the sidelines with no ready cash for decent equities.
Tell me I'm not the only one...

I think any lolly scamble will only be temporary
deflation will slash incomes and therefore most forms of passive income

Potentially, yes.
However, people still need food and energy, regardless of financial market hysteria.
I just can't see the govt letting vast numbers of people go to the wall in an election year (and beyond, if this is sustained).

"people still need food and energy.."

Indeed.
But does it stack up?

If you had 100k in cash, what would be "decent equities" for you to invest now?

Well, to be fair, probably not right now given the antics of the DOW - there's a way to fall as the panic hasn't run it's course.
But when the 200-day MA looks supportive, I'd want to consider MSFT.
Local stocks, it's be sticking with utilities (SPK, MEL etc.)

But no cash, no play...

No equities.
$100k into positively geared well bought rental

UrbaneG.Cash hoarders will still be well behind the capital position of people like you who have been fully invested for some time. Markets have a long way to fall before the doomsday crowd can celebrate equity values correcting to their 'proper' level. Meantime, from your sideline position, cheer on the chicken littles as they are finally able to run round squawking 'I predicted this', they haven't had a lot of joy in their lives over the last 10 years.

True.
The trouble is is, as with most others I'm pretty much locked in to my primary "investment" aka the roof over my head (which is producing stellar returns but isn't that fungible!)
I cashed out of the market about 6 months ago to work on my reno.
I'm only getting hammered on my KS, albeit as I see it as temporary thing as they've been yeilding well over market returns for the years I've been in.

Not to worry - the great thing about money is there is always more of it!

So sounds like you may be reasonably young then and thus have heaps of time to recover. Brilliant timing on cashing up, well done. I'm an old (well, older) fart and have for the last 12 months been progressively selling cyclical, mining etc stocks and buying more defensive, utilities etc, so the damage not as bad as it would have been. I've experienced numerous cycles, this is just another dip on the thrilling roller coaster ride that is equity investing. At these times remember the slow but happy anticipation as the coaster climbs, the joy when you are at the top, with the terror on the way down being the shortest stage.

Timing - I wish I were that clever!
More necessity.

Rather than congratulating each other on how you made clever bets on how fast the stateroom carpets were getting wet......

Did either of you understand there's a sinking going on?

Nup, didn't think so. Whether this is the inevitable foundering or just a downward stagger, best you both understand what the real underwrite is.

Was

Your 'abandon ship, this time it's not just a drill' message has played so many times on int.co that most no longer hear it.

How to comment like PDK:
1) Find random Int.co Article
2) Following (very loosely) the article's theme, comment about draw down of resources, limits of growth etc.
3) ????
4) Profit

Settle down, Cassandra.

Understanding what the problem is and knowing that you can't influence it are two different things.

The IMF during the global depression will instruct govts around the world to pump money into unemployment benefits or UBI and pump money into tertiary education and sit tight 5 years while the central banks re inflate the bubble once again.

You will be told unskilled jobs have gone forever and you need a degree. Suddenly in a few years after assets have been re inflated again those unskilled jobs will somehow reappear again. Along with mass immigration.

Rinse and Repeat...

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The unskilled jobs have not gone - they are just being taken by Shane Jones "psuedo students".
NZ desperately needs a discussion on why this is happening else we are going to have a whole generation of kiwi kids missing out on the starter jobs that the boomers took for granted.

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NZ desperately needs a discussion on why this is happening else we are going to have a whole generation of kiwi kids missing out on the starter jobs that the boomers took for granted

Yes. I hear in the 60s or 70s, you could leave school after 5th or 6th form, go work in a bank, and work your way up the chain. What a charmed existence. Wouldn't have worked for those with a spirit of adventure, but a viable option for comfortable suburban life.

Smalltown. There has been minimal media commentary about the growth in the youth unemployment NEET category. Lees-Galloway trumpets a claimed falling headline unemployment rate but glosses over the effects on the work prospects for young people because of the surging work visa category. The other effect he is studiously ignoring is the knock on impact of increased minimum wages that is causing relativity issues in respect of the next level up and is causing employers to distribute tasks up the chain, displacing youths.

Another opportunity for the rise of a populist politician in reaction to dissatisfaction with the failure of mainstream politicians to represent the electorate.

David Cunliffe might yet make a comeback

So in some slightly positive news. A bit more rain last night and more forecast for the weekend (investor tears maybe?).
Our little red area on the map will slowly change if we're lucky.

Indeed. Windy.com is showing about 70mm for the centre of Northland over the weekend. Some winds as well.

Anyone else watching Carnival Cruise Line (CCL) share price? Have my USD with broker ready...

To be honest I would have expected more than a 50% fall in the last month.

I can't see why anyone would get on a cruise ship again any time soon. But I guess I'm obviously not the target market. I can't see why anyone got on one last month after the Diamond Princess fiasco, and yet there are (infected) people on the ship now unloading in Oakland.

Back in 2009 it was at $15.00 - and that wasn't a direct hit to the tourism (and in particular the cruise ship) industry. Got a long way to come down yet, me thinks :-). Must be experiencing disrupted cashflow presently.

Absolutely - I think it will come down further, but long term I see no reason why it won't recover. Might be a great buying opportunity in the next few months.

i have it @ bottom $23 2008. but definite buying opportunity if they don't go bankrupt.

I was looking at USD. Might be our difference. As an industry however, I think these mega cruise ships are a goner. Target market being middle class, elderly who were spending the gains on their retirement nest eggs. Once the nest eggs are gone (perhaps along with who knows how many of the elderly themselves) coupled with the end of cheap oil...

Coup in China, anyone?
https://asiatimes.com/2020/03/its-time-for-president-xi-to-go/

These big downturns tend to cause the dinosaurs to fall over. In 1989-1992 it was the USSR and Japan. In 2020-2022 will it be EuroLand and CCP controlled China? I mean who in China still believes in Leninism and Stalinism, apart from Xi and his ancient cronies? Must be all of, well, maybe as many as 50 people.

Equally, who in Europe believes the Euro was a success, outside of the Brussels Bubble? Who believes the European Union comes first, their own country second? Not very many.

I think you underestimate the pervasive reach of the CCP.
China isn't some creaky autocracy like Romania ~1989.
They learnt the lessons of the Soviet crisis.

UrbaneG. I suggest you underestimate the power of human beings to resist authoritarianism. EG, the Iranian theocracy is locked in a vicious struggle with a large progressive section of its population, that it is struggling to contain. The chinese middle class is increasingly widely travelled and there is a huge chinese diaspora living in democratic countries. Sure the CCP has extensive reach and is deploying diabolically clever Technology but even that will be no match for the human desire for freedom from oppression.

China has become noticably more repressive over last 10 years. State progressively destroys those that resist. Desire for freedom means nothing against a despotic regime armed with pervasive control of information technology infrastructure.

That was even more true in the former Soviet Bloc - but those states still collapsed. The issue is and was control - the Party wanted to control all aspects of people's lives - it just doesn't work.

Those states did collapse but that was largely due to externalities.
i.e. they were client states and their master disappeared.

The reason the USSR dissapeared was also because of externalties as well as internal contradictions that you've identified.
i.e. they were outspend in an arms race, quagmired in Afg, suffered a crippling drought.

Urbane, I suggest one significant difference between the USSR and China today, is the burgeoning affluence and consumerism of the chinese people. The living standards of ordinary soviets was by comparison unbelievably grim and Gorbachev had no way to address this without renouncing the desperately failed tenets of marxism.

But that is the problem with China - the party has promised to make people rich - if they fail what next.....

Very true.
But remember, it's the Party that has delivered this affluence!
Doubters will be re-educated....

Also, the CCP apparatus isn't really even remotely Marxist-Leninist any more.
The oppression is autocratic, gangster capitalism (which is familiar to all of us, just not so obvious from our comparatively comfortable perch).

Wasn't that grim, the collapse resulted in a huge step down in living standards that did not recover untill the late 2000s. Difference between USSR and China is USSR losened its control and showed weakness until it lost control and China is strengthening, todays surveillance state even in western countries KGB could only dream of.

The problems in the former Soviet Bloc began in the 50's - protests in Berlin and Poland, and the Revolution in Hungry in 1956. The problems never went away it just became passive resistance. The Party couldn't understand - this was the workers paradise but the workers were protesting - they just never understood - jingoism and patriotism only go so far.

Question then is whether the combination of an aging demographic, a failure to get rich (enough) before they get old, the ongoing generation of and prevalence of new viruses among that aging demographic, and the loss of manufacturing to other cheaper countries will be equivalent enough to those externalities the USSR faced.

Actually have pat of that the wrong way around, The Eastern Bloc client states collapsed (1989) 2 years before their master USSR (1991).

True, but the money stopped flowing to the client states in 1987-8, largely due to the costs of the Afghan war, but also notionally as a result of the Glasnost policy.
Compounded with unrest in the Baltic states and the Caucasus from 1987 onwards, the fuse was lit.
That's what I meant by the master disappearing (as in, their direct influence)

Faith in the power of the human spirit vs faith in technology. Tech will win for a while, quite a while in the case of the CCP if it plays a clever game of not being too overt in deploying its power, but my money is on people power; eventually.

I actually agree. It's about the time horizon though.
I just can't see an imminent systemic collapse in China.

""... underestimate the power of human beings to resist authoritarianism "". There were slave rebellions; many of them; all crushed and the rebels tortured to death as an example to others. Slavery occurred in every civilisation and was eventually defeated by the power of the industrial revolution - a water pump was cheaper and more efficient than slaves hauling buckets - unfortunately it was not defeated by the power of the human will to resist authority.

All it takes is for the ordinary soldiers to refuse to kill ordinary people. In order to repress a population you need soldiers from another region who are willing to shoot them. Soldiers from the same region as the people they are told to shoot, will shoot to miss, until the day they just turn and shoot their officers.

Lapun. False equivalency. You'd be correct if this was a discussion about slave rebellions in pre industrial era times but plenty of examples of ideologically suppressed modern populations successfully rising up against monolithic control systems. What makes China intriguingly different is that the state now has the technological means to insert itself into citizens life to a far greater extent than ever before.

"What makes China intriguingly different is that the state now has the technological means to insert itself into citizens life to a far greater extent than ever before."

This is pretty much it.
China has an effective panopticon in operation, particularly now that its deeply embedded into electronic commerce / social credit systems.

The reality is that we've offered up the same to Google and FB voluntarily, but it's best not to think about that too deeply.

The whole of Italy now in lockdown - Imagine if that happens here!

Yes, we shouldn’t forget Italy (now in country-wide quarantine) in among all this mess - another shining example of an “enterprise” having never really addressed its economic woes – “more debt” being the go-to solution to problematic “too much debt”.

So the problem just grows - Italian Sovereign Bonds held by Italian Banks - how do they get out of that ‘Doom Loop”?

“Italy is a fault line across the European financial and economic system,” said Paul O’Connor, head of the multi-asset team at Janus Henderson.

https://www.reuters.com/article/us-health-coronavirus-cds-analysis/italy...

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Now would be a good time for our government to temporarily close our doors to int'l travelers (reviewed weekly) - given 'lockdown' is now an accepted geopolitical concept.

It beggars belief people are still coming in from China unregulated and straight in to business meetings.
Poor Italy. " “For the past few days, we have had to choose who to intubate, between a 40-year-old and a 60-year-old patient who are both at risk of dying. It's excruciating and we cry about it, but we don't have enough artificial ventilation devices. "
https://urlz.fr/c2iZ

Yes, much of the world would regard us as being in a rather enviable position currently – one, in terms of the current number of known Cases and two, our island isolation.

Right now our borders just seem far too porous in relation to the current risk.

Either temporarily “close the doors” or at least seriously take on board Keith Woodford’s suggestions in his excellent piece from yesterday.

There are zombie towns in new Zealand where you would not be able to tell the difference between a virus lockdown and a normal day.

Anyone else think that NZ swaps look they have a lot of falling left to do, given what's happened to 10 year treasuries?

Endless doom and gloomers on this site. Just because the S&P500 has dropped 19% in the past three weeks, and oil has dropped by 52% since the start of the year doesn't mean that the market isn't going up. You should all be borrowing money against your house and putting it in the stock market.

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Such is the state of the commenters on this site, I had to spend a moment or two pondering if this is sarcasm or not.

feels a bit like 87,couple of big drops,bargain hunters jumped aboard buying what passed for bluechips,then it fell off a cliff.

The resemblance to 1987 isn't surprising. The valuations of US companies is absurd. Here the values are high but nowhere near as crazy as the US debt fueled market splurge.

Next up will be the problems in the EU rising to the surface. Italy in quarantine while their entire banking sector is so unstable it is at risk of collapsing. More bad news will be on the way.

Perhaps you can share your experience of 1987 with those who didn't experience it.

For those that don't know - in one day a 22.5% fall.

https://www.youtube.com/watch?v=5PUwr8DsYeg
https://www.youtube.com/watch?v=0_8YEglCFdU

The videos show the atmosphere on the floor. Doesn't investors a sense of the atmosphere today with all the trading now computerised.

The difference with today is the sound of the 120mm fans buzzing away.

give me a shout when we get a real correction

https://www.finviz.com/futures_charts.ashx?t=ES&p=m1

Our dollar is holding up. The coming recession and plague could present enormous opportunities for our food exporters especially if we can remain virus free from now on. The government must be ruthlessly vigilant at all entry points to the country and test the crews of all ships delivering our exports to our international customers. For instance, it would only need the occurrence of the virus in one crew member of a ship taking our commodities to say China for that customer to turn down future exports from NZ. I'm hoping the government is attending to such detailed oversight.

Peak Prosperity
https://youtu.be/Rb94GXQVEKQ

Current key NPI.
Avoid the "pig in the python" call on health system.
Follow path taken by Hong Kong Singapore & South Korea.
Transition to social distancing and hand & face hygiene.
Comms are really important to get the change management right.
Comms with the background.

Italy is the example not to follow.

USA activity.
https://youtu.be/-qzEtXXsiP4

US futures are up ~1% after trump promises “major economic announcements” on Tuesday.

I’m sorry but I don’t believe a thing that comes out of his mouth. Nor do I believe major economic announcements will cure CV (changing consumer behaviour) or resolve the oil dispute.

I’m so taken back by these supposedly savvy investors with millions in resources, still falling for this.

Are they falling for this or hoping someone else is falling for this and hoping they can make a buck. Fear and greed are strange bedfellows.

No-one is taking the nCov19 aspect that seriously Down Under. Just back from Tassie, where a bloke transited from Nepal via Singapore, felt crook, was told to self isolate, and promptly

  • Went to work at the Hobart Grand Chancellor as a serve person for a big conference for three days running
  • Shopped at the CBD Woollies (always busy)
  • Went clubbing (two separate clubs) in Salamanca district
  • strolled back via Parliament Lawn and had a good old yack to several passers-by

The response from authorities?

'That's so Very Disapponting'. No arrest, enforcement from health types, or sanction of any sort.

If he'd tried that stunt in China, he'd be somewhere with the door welded shut.....

Nobody in the West is taking the seriously and will not take it seriously unless the number of cases start going ballistic and people they know personally start dying from it. It really takes a lot to get some people up to speed with this, then again the Australian authorities are doing just as bad a job as they are here. The guy should have been rounded up and locked in quarantine from day 1.

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