Risk appetites return on promise of massive stimulus; real US economic activity dives, joblessness mushrooms; Hubei lockdown lifted; Aussies face harsh virus consequences; UST 10yr yield at 0.83%; oil firms and gold jumps again; NZ$1 = 57.9 USc; TWI-5 = 6

Risk appetites return on promise of massive stimulus; real US economic activity dives, joblessness mushrooms; Hubei lockdown lifted; Aussies face harsh virus consequences; UST 10yr yield at 0.83%; oil firms and gold jumps again; NZ$1 = 57.9 USc; TWI-5 = 6

Here's our summary of key economic events overnight that affect New Zealand, with news investor risk appetites are up sharply in what looks like a completely irrational mood swing.

On Wall Street, equities are very much higher on the hopes Congress will pass a huge fiscal stimulus bill, bailing many of them out. The S&P500 is up +6% in mid afternoon trade, reversing yesterday's -2.9% fall and more. But for March it is still down a net -19% for all the yo-yoing in-between.

The reason companies need that fiscal stimulus (and the Fed's unlimited support) is that the real economy is in a bad way. The US factory sector is now contracting and is now at an eleven year low. But much worse, their service sector is contracting very steeply and is now at an all-time low of 39.1. (a score of 50 is a stable state.) Sadly for them, it is likely to dip further as the gloom spreads as unemployment explodes.

The next regional Fed survey in the mid-Atlantic states district didn't reflect the PMI manufacturing gloom, but it did reflect the bad employment track with a sharp net shedding of jobs in the region's factory sector. Nationwide, carmakers are shutting down and laying off workers. They mirror the aviation industry. And the American real estate industry is going into a sharp reverse. Worse, their US$3 tln commercial mortgage markets has borrowers with tenants that just can't pay the rent. And none of these are impacts that only affect the US.

The list of impacts goes on and on. So it is unclear what investors see in the huge fiscal packages that will reverse the bite of layoffs and closures.

Still, across the Atlantic, European markets rallied very strongly, with most up +10% on the expectation the Americans would join the Germans and others in massive stimulus. Earlier, Asian markets set the tone although not quite at the same bullish levels.

In China, Hubei province is being released from lockdown and the number of new cases evaporates and the recovery rate surges. It is now almost 90%.with only 4300 active cases left in this province. Nationwide the recovery rate is now over 90%. But that is leaving behind economic devastation. Chinese companies had their worst quarter on record, with every individual sector reporting worse results in the first three months of this year, according to the China Beige Book. Major infrastructure projects are getting a renewed boost. And these are so big, that is keeping core commodity prices from falling.

In Australia, they are facing a virus storm because of an inadequate response, mirroring the US. A wide range of economic analysts predict their economy will shrink -3% or more this year and more than 1 mln people will be out of work soon. Retail and the related commercial property sectors will be particularly hard hit. Many businesses just won't survive.


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There are now more than 150 cases identified in New Zealand, with 55 new cases in the past 24 hours, including community transfer. Worldwide, the latest compilation of Covid-19 data is here. The global tally is now 400,000 of officially confirmed cases, up +100% in a week. There are now 317,000 cases outside China and almost all of them are in five core countries. Italy is up +5000 from just yesterday morning's tally. The US is up +10,000 cases from the same time and now at 47,000 cases. The caseload is rising so fast there that later this we will probably report that the US is the world's epicenter of the global outbreak, surpassing China which seems to have things under control for now. And Switzerland now has more cases than South Korea, with the UK not far behind. Japan and South Korea have successfully isolated the outbreak. Sadly however, case numbers in the rest of the world are shooting up, up +50% overnight to over 50,000. The official death toll now exceeds 17,500 worldwide, but is probably much higher - as is the real infection rate.

The Tokyo Olympics have been delayed by one year even though Japan is largely free of the virus.

The UST 10yr yield is rising again and also on a wild yo-yo ride. It is now at 0.83% and up +8 bps since yesterday. Rate curves have moved sharply positive as short term rates stay collapsed. Their 2-10 curve is still very positive at +47 bps even if that is a pullback. Their 1-5 curve is much less positive at +25 bps, and their 3m-10yr curve is still way out there at +86 bps. Essentially, markets have no idea how to price yields at present. The Aussie Govt 10yr yield is now at 0.99% which is a net rise of +7 bps in a day. The China Govt 10yr is down -1 bp to 2.71%. The NZ Govt 10 yr yield is now at 1.46% and unchanged since yesterday.

Gold has risen very sharply today, up another +US$69 to US$1,614/oz.

US oil prices are up +US$1 today to US$23.50/bbl and the Brent benchmark is at US$27.50.

The Kiwi dollar is starting today a lot firmer than this time yesterday, up +1c and now at 57.9 USc. The greenback is being sold down. On the cross rates however we are lower at 97.7 AUc but most of that fall happened early yesterday. Against the euro we are also firmer at 53.7 euro cents. That means our TWI-5 is now at 65.5 and its highest in more than a week.

Bitcoin is now up to US$6,651 which is a daily rise of +5.7% from this time yesterday and a second day of good gains. 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.

169 Comments

13
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Ah! The Good Old Days. "We're limit short, boss. We can't sell any more. What do we now?" Easy answer! "Buy it all back! All of it and go Limit Long. Then you'll have twice as much to unload when the next moves come". That's what short Term Traders do.
Anyone who thinks " it's all going back to normal", after this episode in all of our lives, is so deep in the trees (what was) they can't see the forest ( what's coming).
Do we 'come out of isolation; after 4 weeks if IT is still raging in India? Or do we wait for 4 weeks after the last country has called the 'all clear'? And what will we and our sacrosanct asset market valuations, all of them, look like whenever that time is? This....has a LONG way to go.

Good questions. Until an effective vaccine is widely available internationally, any one visitor to NZ could set the CV19 chain into swing again. How long then might that danger lurk? Wish there was an answer. This one doesn’t seem to be running down like Sars or the Swine outbreaks. Hong Kong relaxed too early for instance.

Following our lockdown should all visitors perhaps be put in a govt operated quarantine for 14 days on arrival?

12
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Yeah we need to get domestic life back to normal as soon as we can. That will mean strong limits to any international travel for the foreseeable future.

Given some countries will struggle to get this under control, what does that mean for air travel in the medium term? Will some countries open up while others remain closed? Will we, for example, open our borders to flights from China and South Korea, while flights from Europe and the USA might not be allowed. Everything could become very fragmented. It looks to me like it could be many months before international flights resume....and even that might be being optimistic.

I reckon at least 1 year before international travel is remotely approaching 'normal'

Yes indeed. But what stats do we rely on to open up international flights. For example, can we trust the CCP? (Rhetorical question).

Bring back sailing ships.

Why would you want to bring back plague carriers?

How is that any different to an aircraft? Reason being you have quarantine while onboard, you know by destination if the virus is present in the passengers.

Its no different to an aircraft, just a bit slower. Hence why bother. And no, with Akl to Syd taking <10days, they aren't useful as quarantine unless you anchor them up in the harbour for a few extra days.

Your comment makes no sense Prag?

Apart from the fact they are no safet than aircraft, they also were a great source of spreading plague.. sailing ships and rodents.

Like the Diamond Princess you mean?

In reality you could put about 10 names in front of Princess, (who names these boats) they all became floating death traps.
People who joined cruises or stayed on boats from the middle/late Feb are all in the running for the Darwin award this year but I think the clear winner is between Xi and the official in Sydney who recently allowed the docking and uncontrolled starbursting to the 4 winds of Wuhan infested passengers.

Unless the lockdown fails and it spreads through the entire country anyway so we have mostly immunity.

And before we get our hopes up, just remember there is no vaccine for the common cold. And the flu vax is only 66% effective.

15
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https://www.telegraph.co.uk/news/2020/03/24/criminal-investigation-austr...

This is what has to happen by the World Court in the Hague to Xi and the rest of the CCP criminals when this is over. Xi sat on it for well over a month and the carnage occurring is all at his door. The WC is not just for African despots and Balkan Warlords.

Interest also needs to be careful who it allows to post articles. Keith Woodford last week was praising China for their "firm handling" of this. WTF!! That puts Rewi W in the Chinese propaganda team big time.

I think once China realised the scale of the problem they did act, just the communist machine is a bit slow to act, like most bureaucracies but more so.

%85 of new cases in the last 24 hours are in the US. Globalisation may have made some people very rich but at what cost?

Well that's sugarcoating it. Do you have another daughter/friend in the CCP?
They threw medical whistleblowers in the slammer FGS.
Read the article from Austria. It's a criminal act apparently but Criminal Zero in this case is Xi.

11
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yep, but that's what happens when you have State control, I don't want to blame all Chinese people. I don't know how you can change Gov't in China without blood? and not just theirs.
We are beholden to the Chinese for a lot of our exports and we meekly follow along taking the money, whether it's for our milk powder or to help underpin asset bubbles in housing.

China has morphed into some kind of hybrid communist State and no one knows what the future looks like, least of all me. I don't think the present Chinese leadership model is sustainable, especially if the economy collapses.

I also suspect they still have Coronavirus in the populus.

I think if there is enough in the western media how this is Xis fault then with the Chinese diaspora it will eventually get back to the masses and at some pt business nous will lead to a bloodless changing of the guard.

Bloodless changing the guard maybe to someone worse - maybe a Chinese Pol Pot. If the western media can prove freedom of speech saves more lives than autocracy then China might peacefully move in our direction. However looking at China and USA death rates from Covid-19 the evidence is pointing in the opposite way. Lets pray that just for once New Zealand really does set the example for the rest of the world and we quickly get this virus under control and keep it under control and we all leave our house-arrest return to a free society.

11
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international travel won't be the same

Certainly not until there is a vaccine. And then I suspect there will be limited carriers that survive - hence airfares and capacity begin to reflect the resource depletion that the world wasn't previously prepared to face up to.

It's a really stark prospect for us as one child decided to stay in the US. We can be very, very thankful for modern comms though - as we can see and talk to him for free any day we like. Time to count blessings!

12
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No new cases in China being reported to WHO OR, new CV cases in China not being reported.

Watched a news programme last night stating the later is true. There are new cases but they are not being reported. I would take Any news from China as not entirely the truth, as usual.

Words are important. the critical word here is "reported". Not being reported doesn't mean there aren't any, they're just not being reported!

Yep.
Also note the war of words is heating up between China and the US. There's gonna be a lot of smoke screens and lies from both sides.

Exactly Murray86

Same with Assange.

Actually, it's the opposite. The Chinese leadership has realised the severity of the problem. And they are scared. It's the reason why they are spinning the propaganda machine as hard as they can right now.

Such an accusation would be hard to prove. Historians still argue whether Mao's 'great leap forward' was a deliberate attack on wealthier peasants or plain incompetance caused by an attitude of shoot the messenger.
We can agree with an action without joining the propaganda team. China's forced organ harvesting, repression of Falun Gong, destruction of the Uighur culture, ignoring international arbitration, etc should be criticised while their diligent attitude to quarantine praised. Our govt has taken the approach of trusting arrivals to self-isolate; China is distrustful and enforces compliance - I think they are right.

Mao followed the example of Stalin & Co whereby they decimated the Kulak(s.) Had the same advantage of closed borders, wide open spaces; probably too, greater fire power. The creation of the Soviet Union was the only road map he had. Those atrocities are not even 70 years ago, still linger, a latent reminder in the psyche of the nation.

There's also of course the additional culpability of the corruption that enabled China's flaccid wildlife eating elite to bribe/lobby the CCP to reopen wildlife markets after earlier outbreaks with the same cause. We wouldn't have had to deal with Covid-19 if this had not taken place.

bw - This is a crisis we have never seen, I really don't think it is helpful with alarmist comments like yours above.
The only thing we all can do, is our bit to isolate and be helpful to others.
At the end of the 4 weeks we all will have a better idea what's next, let's get to that point instead of guessing !
Many people potentially could die from this virus hence why we are doing this lockdown, so let's all support our Government actions and stop scaremongering.
Keep safe.

Watch this , you might realise that this is not what you think . Has the world been wrong before ?
https://www.youtube.com/watch?v=jh1T4c3wP8I&feature=youtu.be

I believe the Alert Level system will be with us for some time. If we are lucky enough, we will roll back to Level 2 or 1 after two or three months. But yes, it has a LONG way to go before we can go back to "normal".

Gold up $180 over night. The price of physical has completely decoupled from the spot price. I think guwop had a zero missing when calling it at $800 US.

Interesting fellow, with his/her random one liners.

Mint is just cold spicy.

Masher
It is not just guwop with random/ridiculous one-liners.

Now now printer. Why so negative?

Nothing to do with gold/silver prices right?

Masher
:)
Cheers

Gold and crptos have followed the stockmarket up overnight. Next time the stockmarket goes down these need to move in the opposite direction.

Wondering how safe NZ banks are right now, and whether term deposits could be at risk of bail in under the open bank resolution. Any thoughts on this?

A bank Term Deposit with an RBNZ approved bank in New Zealand is as safe as anything can be.
If it isn't, then we will have no financial system left, and any other store of value you want to image also has $zero 'value'.
We are a tiny country with our own banking system and our own central bank. If push comes to shove, your Term Deposit will have RBNZ on the letterhead, instead of XYZ Banking Co., the next time it rolls over.
How much do you think that Investment property you have would sell for if there was no NZ banking system? Whatever figure you pick will just signify ...it's worthless... because will you want 'the cash in exchange come sale time?
And as for OBR? That's' for the smallest of our organisations, not the Big Ones.
Yes. We may have a Fixed Exchange Rate again, and Exchange Controls into direct commerce into strict productive areas, and maybe a whole host of Government-Owned currently private enterprises, but it's all doable - WITH an NZ banking system intact.

I don't think our deposits are as safe as anything can be otherwise the OBR wouldn't exist. The only possible extenuating circumstance is the virus where a different view might be taken but while the OBR exists and we don't have deposit insurance I wouldn't be so sure.

The OBR is an operational procedure - to give some liquidity to customers whilst the nitty-gritty is sorted out. ( As its name suggested - keeps a struggling bank OPEN)
Deposit Insurance may be comforting to many, but in reality - it's not worth much. That's why we don't have it. The USA, that does, is a whole different kettle of fish - there are thousands of banks over there; all doing God knows what, so it makes sense for them. Smaller economies like our, and even Australia? Not that much. The RBNZ is our guarantee.

Thanks to both of you for offering your thoughts. I'm just feeling nervous because currently everything I have is invested in a TD with an NZ bank (not one of the big 4). I don't want to move it, but I'm riddled with indecision.
Obviously, I'm not asking for financial advice, just struggling to find definite answers: Is anything guaranteed? Are smaller banks riskier than larger ones at this point?

Last thought:
The Government requires that banks have a Core Funding Ratio ( it was changed yesterday, but the basics still apply).
That means local banks HAVE to have specified deposits made with them, including Term Deposits ( local funds) if they want to operate in NZ.
For the Government to make such a requirement means that they "guarantee" the funds that the banks have to take in, by Law. Otherwise, Term Deposit rates would be 0% ( look where they are compared to the OCR, at 0.25%!) and they'd seek to meet their CFR in other ways.

I guess a question could be why would banks pay a premium to the risk free rate on TD's if there's no risk?

And why even bother with capital ratios if we can just change them in times of crisis?

And why does our current banking model need to deal with both borrowing and lending if we're not that worried about balance sheets/capital ratios at the end of the day? If people have savings, just let them buy government bonds - removes the need to pay bank executives millions of dollars a year to mismanage our financial sector.

Want to buy a house - take a loan from the government. At present, it would appear the current model of a banking sector is a drag on the real economy/markets. Banks take high wages to mismanage our lending/borrowing and that costs tax payers through higher margins than need to be made for lending/borrowing. Just let the government do it given they seem to do it anyway every time a crisis comes around.

The RBNZ have made it absolutely clear that bank deposits can and will be used to bail in a bank Should they get into trouble.

Brett Stadelmann I assume you know about KiwiBonds? They are a essentially a term deposit with the govt with an interest rate set at the OCR. You can put $500k in them for any one issue (a new issue begins when the OCR changes). They are not formally guaranteed but you will get your money back from KiwiBonds provided the Crown doesn't default on its debt. And even if it did, the Crown can't be wound up (unlike a trading bank) so the Crown would always owe you (and it can raise the money by taxation or printing it).
The KiwiBonds prospectus sets out the risks at Section 5:
Risks of investing General Risks
Your investment in the Bonds is subject to the following general risks:
Credit risk
If the Crown defaults on, or is otherwise unable to comply with, its payment obligations under the Bonds you may not recover the money you pay for the Bonds or receive the expected returns.
Consequences of Crown defaulting
Although the Crown could, in theory, default on its obligations under the Bonds it cannot be put into liquidation or wound up. Accordingly, the provisions of New Zealand law that give priority to certain creditors over others in the liquidation or winding up of a debtor do not apply to the Crown.
Claims of all creditors of the Crown would be brought under, and governed by, the Crown Proceedings Act 1950. You would not be liable to pay any money to any person as a result of the Crown’s insolvency solely because you are a Bondholder.

Totally disagree. Depositors money can simply be taken if the banks put their hands up and claim distress. The whole purpose of the OBR is to backstop the banks, so claiming "we will have no financial system left" is a bit extreme. It is the step before that to ensure we have a financial system left. Once a bank gets into distress, the OBR can be triggered to ensure they can use depositors funds to bail themselves out. That is what the law says.

As for you assertion that "any other store of value would also have zero value" - again incorrect. If the OBR was successfully used to bail out the banks, it would be because the bank lending has not been taking into account real risk in their loan books. Depositors money would be used to bail out the loan book, hence people holding mortgages and houses on them still retain their value.

Saying that this would never happen and if it did the RB would then take over your deposits is not what is spelled out in the law. The law was specifically made for situations like we are experiencing, which means it has a real chance of it being put into effect. The law states what will happen if it is put into effect and it won't be good for depositors.

I suspect that Kiwibank would be seen as "too Kiwi to fail" and would get a bailout. Unfortunately Kiwibank would also be the first to need a bailout by some way as the last couple of years it has struggled with failed IT projects and has not demonstrated profitable growth potential.

Yes, lest we forget "Coremod".
I think Kiwibank would be bailed out by the govt in a much more comprehensive way than ANZ, BNZ etc would be.

13
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I don't see international travel returning to normal for a long time. Borders are back in fashion. Globalism is dead.

Until such a time that one can produce a vaccination or antibody certificate, it's going to be mandatory quarantine required to go anywhere.

Fingers crossed an effective drug treatment becomes available. Rapidly.

An awful lot of kiwis are now stranded overseas without any idea when it will be possible to return home.

I suspect this will prove correct, given that most countries are dragging their feet on a lockdown.

At this point the virus has gone global and every country is impacted.

If we have got far enough ahead of the virus and we manage to eradicate it domestically, we will have no tourism sector for at least a year. And overall exports are going to be hit as every countries economy will be impacted by lockdown. The cumulative impact of economies across the globe shutting down will amplify the negative impacts.

Let thy food be the medicine , and thy medicine be thy food
https://www.youtube.com/watch?v=jh1T4c3wP8I&feature=youtu.be

10
up

Most of us will be reasonably comfortable in our own homes however we should spare a thought for those who are trapped somewhere away from their homes or living in rather confined conditions like boarders or those in a studio apartment, or those that share a bed. At least we can go for a walk but this is going to call upon our reserves of resilience and fortitude. Maybe concentrate on keeping a diary, learning something new, developing a skill, exercising and losing some weight.

Yep nice points.
Exercise is important. And nature.
Music, film and books for me as well.
I am 60% through David Mitchell's 'Cloud Atlas', loving it. Some of it quite spookily echoes the current crisis. Luckily the book has some humour in it.

And the movie stars Tom Hanks.

Ha ha. Is it any good? Seems to be mixed reviews.
I will watch it once I finish the book.

It's different. I enjoyed it for that fact alone. But like most movies if you've read the book you might be disappointed.

I presume you read the book? What did you think? I love it

I think with the amount of food people have stockpiled some are going to come out a bit tubby.

and very sick of rice

So the banks are giving a mortgage holiday, but only after they had a chat with the Government. I rather suspect that conversation was somewhat frank! I am happy for the FHBs, but now I expect ALL landlords to pass this on to their tenants, not a part of it. Driving to work this morning I heard a lady being interviewed on RNZ who has had her rent dropped by 40% for the duration of the lockdown. Pleasing but only 40%? Where is the rip off here, the rent or passing on the mortgage holiday? Parasitic landlords need to be much more firmly regulated!

A Mortgage Holiday isn't free money. Reduced rent is? That MH still has to be paid back in its entirety - it just gets capitalised into future payments that are bigger, or the term gets extended for longer.
Yes. Rents should fall over this period, but should they then be recouped afterwards, as the mortgage payments will?

How far does your thinking go?.

You have noted mortgages and noted rents.

If you are deferring and accumulating, what of wages, (incomes) is the rent payer due payment of accumulated lost wages?

And the other way banks are being fully supported, will the banks have to repay the support at a later date?

See the issue?

"is the rent payer due payment of accumulated lost wages?"
Yes. That's what the Government 'handouts' are!
Will the banks have to repay their bailouts? Yes. That's why we are in for credit rationing etc. The Banks are only the sum of their shareholder and customers, after all, so they could be seen as paying. But repayment there will be.
No one is going to come out of this 'whole' - 100% unaffected and 'the way they were' - no one.
That's what I wrote weeks back:

"The life and economic settings we have been lucky enough to enjoy to over the last 70 years, is over" ( or words to that effect!)

It is.

bw
You are correct.
Too many here with a blood rush.
This is explained in a Stuff article:
“A mortgage holiday is when you stop contributing or making any repayments on your mortgage, but interest continues to mount.
You will still have to pay that money to the bank at the end of the six months.”
https://www.stuff.co.nz/national/health/coronavirus/120539081/government...

MORTGAGE HOLIDAYS ARE NOT FREE MONEY - after the holiday period (six months) the missed mortgage payments are made up by either increasing the term of the loan or increasing mortgage payments. Mortgage holidays already exist.
Read "mortgage holidays" as being "deferred payments" and "deferred" means to put off to later.

A rent holiday would simply mean that the rent would be paid at a later date - you would end up still be paying the rent.

I haven't done any sums on this but a mortgage holiday where you are not even paying any interest will have a big effect long term. It depends on how long it is for of course. These sorts of things will have an effect on the amount of equity people have in their house, the discretionary spare cash there is in future, how soon people can retire, what matrimonial property values are etc.

P8, the government said "Principal & Interest holiday", so really we don't know, we have to wait for the details, I certainly want to find out. It could be a "full holiday" like a break of 6 months which resumes after the 6 month as if it was the day after the first day of the holiday. We'll just have to wait for details anything else is just speculation

Principal and Interest Payment Holiday. Payment. Not charges, Payment. The act of a consumer handing over money that is owed for a service or product (Payment). Not the act of applying an ongoing cost to a product/service (Charge). Or are you suggesting that banks will just write off 6 months of interest income on capital lent to those who qualify?

The six-month principal and interest payment holiday for mortgage holders and small business customers whose incomes have been affected by the economic disruption from Covid-19.

https://www.rnz.co.nz/news/political/412511/retail-banks-agree-to-a-mort...

Not a mortgage write off.

Holiday sounds nice doesn't it, but in this instance the debt still needs to be paid... later.

What would've been a 30 year term now becomes 30 years and 6 months.

So no real holiday there eh.

Maybe research the facts before posting next time.

Theoracle
Great comment: "Maybe research the facts before posting next time."

What about landlords who have to pay mortgages though? I think landlords should inquire as to the state of their tenants financial situation. Some may have lost their jobs and have no income however others may be retired or on a benefit of some sort. Each situation will be a little different. We should all be thinking about our fellow New Zealanders and helping out where we can in the most appropriate way possible.

Once landlords start giving discounts for hardship we are on a slippery slope.

Slippery slope to a fairer society? How can we steepen that slope?

Landlords are in business, and the ideal is with a power balance. The residential rental business has no power balance. Yes a renter can walk away, but living on the street is not a viable alternative option to renters. No one should be faced with that. Landlords should not be able to expect the Government to cover their risks or to subsidise their income. The choices they are making on how much to pay for an investment property, how much mortgage to cover it with and, finally how much to charge for rent in today's society have led to little more than highway robbery of vulnerable people. It needs to be regulated.

That power balance is only in recent years, there's been plenty of times where it is hard to attract a tenant - it's part of the reason there were so many terrible tenants, because they could not pay, or trash a house and then move on to the next one because they could.

Do I think we need a rebalance of power - yes but both sides need to do better this time around. And it is coming with the death of tourism for the foreseeable future houses have started flooding the rental market - take a gander at Rotorua or Queenstown listings

Yep, if landlords are a business and their suppliers (tenants) can’t pay them their business will likely fail. I was reading a Twitter post last night and most landlords admitted that they could not continue to pay the mortgage on their rental properties if the tenants couldn’t pay The rent. Some could manage for 2 months max. I imagine there will be a rush to sell once we are through this round of covid19. Many responders were holding 1 or 2 properties. There will of course, be a few professional landlords that because they have been in the game for 10-20 years they manage this situation. Most I fear, will not. Simply saw maxing out on debt as a get rich quick scheme which may have far reaching financial consequences for themselves and the banks.

This is why I have considered the process of using equity in one property to buy another investment property a ponzi scheme. It only works if prices continue to go up. The whole system dies if prices start falling. And I think the system just had a severe stroke.

1) " if landlords are a business and their suppliers (tenants) can’t pay them their business will likely fail"

It depends on their cash balance on hand. There is one property investor I know of who owns over 60 investment properties. They are all cashflow positive. Unclear how they would handle a month where none of their tenants paid them. They will benefit from the mortgage holiday from a cashflow perspective.

Yet after the mortgage holiday, they could see tenants defaulting on their rental payments as the tenants are blue collar workers and there could be a high rate of unemployment.

That's the issue with high operating leverage and high financial leverage. It works both on the up and the down.

2) "I imagine there will be a rush to sell once we are through this round of covid19"

That is how prices fall dramatically due to the imbalance of effective supply and effective demand. If people want a simple understanding of how that works - look at financial markets - that is exactly how they work.

Yet the property price optimists still talk about underlying supply and underlying demand, and the underlying shortage of housing. That is how economists get caught out with their property price predictions - like the Auckland Council's David Norman.

https://www.interest.co.nz/property/102278/david-norman-assesses-risk-co...

The risks were highlighted in the comments of that article to Due Diligence.

3) "There will of course, be a few professional landlords that because they have been in the game for 10-20 years they manage this situation"

As property prices rose, a number of professional landlords in Auckland used deposit recycling / equity release to take on more debt to buy more properties. Some are at maximum allowable levels, and may still be vulnerable.

Also remember, that there are a large number of property investors who are negatively geared, especially in Auckland - they were claiming tax losses against their income.

1) what happens if one or both of the household income earners loses their job or experiences a cut in their weekly wages due to reduced hours?
2) what are they likely to do with that negative cashflow property?
3) what will happen if there is a large number of potential sellers looking to sell at the same time?

Refer comments made here https://www.interest.co.nz/news/99060/we-look-changes-average-loan-size-...

.

Well said.

a 40% drop in rent is a good move Murray. It is. The landlord might not have received a mortgage holiday themselves. I think this is an kind act and meant as such. The % is very high too. How much more did you expect? 90% or totally rent free?
Parasitic landlords need regulation, but I do not know why you have chosen one that have actually acted in the opposite way.

You are correct, in that the link can be misinterpreted. I agree that it is a good move and we don't know the detail from the Landlord's position. So sorry about that. But the point to a mortgage holiday is to give relief to people not receiving any or all their income for the period.

Yes the debt remains, and especially for housing investors it should. But the devil is in the detail - does the mortgage holiday mean that interest does not accrue for the period? This will be down to the banks and predatory ones will likely keep it accruing. But for intents and purposes, the entire economy is stopping, so I suggest that interest accrual should also stop as well. If the entire benefit is not passed down to renters, what is the point of it? Let's not bullshit ourselves here, the Government's efforts have all been towards protecting the ordinary people in the street as best they can. While they cannot do it all, this is one benefit that should fully filter all the way down!

But not ALL landlords are going to get a mortgage holiday. It's only those who are in financial difficulty due to the virus.

If they do get a holiday then I would expect them to pass on the savings from mortgage portion of the holiday. But fixed costs like rates, insurance, water, routine maintenance still need to be covered (In parts of Europe those costs are covered directly by the tenants).

We won't be asking for a mortgage holiday because we have built a savings buffer for this exact reason. We have however asked our tenants to keep in touch if they have any difficulties and we work out a solution together.

FYI our rents are 30% below Market rate, and we've had all our tenants for 5 years +

If landlords get a mortgage holiday, you say it should be passed on to tenants, so how does that work? remembering that the landlord still has to pay this interest back as it is being put onto the Capitol owed, and interest charged on that.

Well that's for the landlord to workout I guess, maybe they just factor in the principal component of the rent, and still charge for the interest that's accumulating.

Each situation will be different but my point is that if someone's cutting you some slack then you should cut others some slack.

Don't disagree, but if the bank cuts the landlord some slack the bank will make sure they will get their money in the end. I am not so convinced at the landlord getting money from the tenants in the end.

Can people clarify what exactly a mortgage holiday is? You don't pay the mortgage for 6 months so your mortgage term extends by 6 months? Does interest still accrue over the holiday period?

Yes to both.

We don't know yet

Basil Brush
Great to see someone ask rather than having a blood rush and jumping to the wrong conclusion.
In answer to your query, I refer you to the link I posted above:
https://www.stuff.co.nz/national/health/coronavirus/120539081/government...

Note the comment: “A mortgage holiday is when you stop contributing or making any repayments on your mortgage, but interest continues to mount.
You will still have to pay that money to the bank at the end of the six months.”

And that is the fly in the ointment, the banks need to do more by cutting the interest too. Why do the banks and the wealthy seem to think their business should not be impacted when the entire rest of society is? This is a significant part of my concerns with recent business models, the big business's seem to think that somehow they are above society. That they are not a part of it and shouldn't be subject to it's laws and ethics. If that were in any way true then they could only be described as parasites. But they are a part of society. they are a societal construct, and accordingly must work with society with respect to all of it's issues, especially in a crisis.

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Any word on an ACC holiday? My risk for accident injury has just fallen off a cliff for the next 4 weeks+

Comon folks, especially commenters, support Interest and put a monthly ap thorough to them. The alternative is that Interest becomes a pay-only site.

The NZ Govt 10 yr yield is now at 1.46% and unchanged since yesterday.

With this information unchanged and wrong for the last 48 hours at least, I am thinking paying is a not a good idea. - Actual pricing

"Yvil
I was just making the point that I'm rich indeed."
Your support is all they will need then.

Yvil might be facing some cashflow stress.

Yvil's tourism related businesses might be experiencing some significant decline in revenues.

1) Airbnb
2) Motel

Unclear how much leverage has been used to finance these businesses.

Yvil receives a very good floating rate from ANZ for having a sizeable business with them.

by Yvil | 25th Mar 20, 12:47pm
Sounds right Muzled, I have 3.74% floating with ANZ (includes a 0.7% discount for having sizeable business with them

https://www.interest.co.nz/personal-finance/104244/more-banks-make-fixed...

by Yvil | 10th Jan 18, 9:24pm
All my loans are interest only. At the same time I have repaid over $400'000 of loans in the last 2 years. I just like to be in control of which loans I repay and how much I repay

https://www.interest.co.nz/news/91545/loans-worth-almost-half-nations-gd...

I wonder if people are losing confidence in the US$. The rapid appreciation of gold would support this and as David notes, "it is unclear what investors see in the huge fiscal packages that will reverse the bite of layoffs and closures."

I was watching Peter Schiff shout at a camera last night and a collapse of the dollar seems to be his prediction.

For anyone that feels like being shouted at about the end of the financial world for 4:30 hours, https://www.youtube.com/watch?v=K_rtWh6QxWU&list=WL&index=2&t=5586s . He's total alarmist but some of what he says makes sense.

Edit: Perhaps this reversal in the US stock market is the government has begun buying EFTs

He's been calling it correctly for a time now. MSM don't like what he has to say as it conflicts with the "greatest economy in the history of the world' narrative they have been peddling. They dropped him as a guest commentator as a consequence...

Yes so the landlord still has to pay. But at least his "business" "machine" is still generating revenue, abit possibly discounted.
Spare a thought for companies who's main revenue stream steams from labour. Zero revenue yet the expectation to pay for the "machine" that is idle. Whilst the fixed costs (factory rent, rates, insurance, power, etc) remain and are being demanded.
Compare this to the warehouse with one or 2 store men full of stock. The stock will still be there to sell and costs nothing except interest over and above fixed costs.
The playing field is not even. If you employ a lot of kiwi's your behind the eight ball, and the expectations are high.

Ben Hunt

Bezos sold more stock the first week in Feb. than he did in the prior 12 months.

Bob Iger resigns at Disney, inks exit deal. Ginni Rometty does same at IBM. Ajay Banga does same at Mastercard.

So weird. Hard to explain. Real head-scratcher.

https://www.wsj.com/articles/bezos-other-corporate-executives-sold-share...

Is this any different to the Congressman who got a heads up a couple of weeks agon and sold up large. US listed CEOs taking all options and exiting before they are worth less, is anyone surprised....?

One of our sons has a super plan with his employer. On resignation, one cashes out of that plan, as it is an employee only plan - low risk investments (fixed interest only). I think his is a 7% matched contribution.

I suspect all these execs are just cashing out while the Fed continues to keep the dollar party going - as that can't go on forever.

See this what happens when you can't afford health care, people try to self-medicate: BBC Coronavirus: US man dies after taking drug he thought stopped virus. "An Arizona man has died and his wife is in a critical condition after both ingested a form of chloroquine in an apparent effort to guard against Covid-19.
The drug has been touted by President Donald Trump as a possible treatment for the virus".
https://www.bbc.com/news/52012242

Jeeeeeeez

'They ingested fish tank cleaner, not medication': Media criticized for linking Trump to death of Arizona man https://www.washingtonexaminer.com/news/they-ingested-fish-tank-cleaner-...

35 years ago in PNG I used to take chloroquine; it is vile; now I'm old I'd rather risk dying of Covid-19.

I too did time in PNG and know what you are talking about. The Malaria I contracted was resistant to chloroquine, I'd take it and 4 weeks later I'd get malaria again. Went on for approx. 6 months (6 bouts) until I went to a Chinese supermarket and brought Artesunate over the counter, no side effects (like chloroquine) and Malaria never returned. Wonder if they have tried it?

CJ009
Trump is most definitely the type of leader one doesn't want at any time but especially now.
A few days back, Trump - in front of the press including tv cameras - claimed that chloroquine had been approved for use in treating the coronavirus by the US Food and Drugs Administration.
"We're going to be able to make that drug available almost immediately. And that's where the FDA has been so great. They've gone through the approval process - it's been approved."
Chloroquine has been approved to treat malaria and arthritis; however, the FDA has made it clear this is not the case for treating people with the Covid-19 coronavirus.

I see today he is saying that people don't want or need a lock-down; they would rather be out and about and it is better for the economy. How the hell can a country get buy-into a lock-down when such comments are being made.

Are you sure?

https://www.washingtonexaminer.com/trumps-poll-numbers-rising-despite-in...

Recent polling shows a sharp swing toward Trump on dealing with the mounting public health crisis, even as he has taken on a more confrontational posture toward the media in daily press briefings

I've lived in America and met many of its voters. I'll leave this comment there.

Henry
I do not disagree that there may be a swing in popularity towards Trump and that is part of the problem.
What concerns me is he is not he the right person to be making unpopular decisions when his interests are simply egotistical and he is prepared to lie in those interests.
In the past he has not in the least bit been concerned with the victims of failed apartment complexes or Trump University - his values are based on what is to his egotistical benefit.
Clearly he is prepared to sacrifice both lives and ultimately the US economy if it enhances his popularity for November.
Even Hitler was popular.

Agree with you Printer8, Trump might be popular in the short term over the virus but then that's probably down to him pushing none proven medical cures as you see in the recent media and his disdain towards China, trying to fully shift blame on to them which Trump supporters like to hear.
It's all too obvious that Trump doesn't care about people, he only cares about the stock market and is now trying to push America's in to reopening for business by Easter his "beautiful timeline" is going to bite him in the butt.

Yet areas like NY are pleading for medical supplies and is warning Covid-19 is spreading in his state faster than "a bullet train".
"The apex is higher than we thought and the apex is sooner than we thought," Mr Cuomo told reporters on Tuesday.
BBC Coronavirus: Reopening the US by Easter 'a beautiful timeline'.
BBC Coronavirus spreading in New York like 'a bullet train' https://www.bbc.com/news/world-us-canada-52012048

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If people need hand sanitizer just go to the Vet or PGG farmlands, they sell it 5 litre containers, I use it on the farm at lambing and when around other unpleasant things that come up from time to time. They also sell litre bottles of iodine we use for the horses. Antigerm is one of the brands, it's even made in NZ.
at 50 ml per litre it's going to last you a while.

Also Virkon S is a strong disinfectant for surfaces. Often used it on the calf shed when I lived on the farm

Do either of those suppliers sell hydrogen peroxide (3%) in large quantities? I buy it in little bottles at the chemist - and they are an exorbitant price.

Thinking being blonde during lockdown will be more fun Kate?

LOL. I think that's what Trump uses!! But it has a wealth of other uses, my daily one is as a mouthwash - whitens teeth and I've been cavity free for years!!!!

https://www.healthline.com/health/hydrogen-peroxide-uses

Andrew some of these farming suppliers aren't actually opening their doors and some have already shut them e.g. Farmsource. You phone or order online and they will either deliver it or leave it outside for pickup.
For those in Central Otago/QLDC area - Cardrona Distillery has had free hand sanitizer from their distillery process available for the last couple of days. Just have to take a 500ml spray bottle with you. One bottle per week allowed.

When to use soap and water and when to use hand sanitizer. https://www.cdc.gov/handwashing/pdf/hand-sanitizer-factsheet.pdf

grain guys told me it shouldn't be much different than before. Crops have to go in and we need drench etc. Vets will be open, Bunnings trade dept open. I should survive, just. Oh and booze shops are open, essential I guess.

Farmlands are going to process non contact orders for shareholders

Well this lockdown is going to be a failure. Over half the people I have spoken to, think it just means no work.
i.e.

They can still go hang out at their brothers/sisters/parents place - As that is their "Bubbble".
They can hang our with their neighbours.
They can still go to a mates place for a beer
They can still take kids to their friends place for some social interaction.
They can still go Fishing, boating, hunting, surfing, cycling, driving, [insert other activity here]...
They can still go "shopping" i.e. move around any open essential shops and browse.
That online shopping will still be fine because couriers are running (Hint: Non essential shops cannot have staff in their distribution centres)
They can still go to their "private" place of employment. i.e. work alone at a seperate premises from their residence.
They can just pop down the supermarket for some beer/chips.

Hate to break it to everyone. But this is not essential - STAY AT HOME!

An addition - all the people walking. Just went down to the letterbox to lock the gate. 40-50 people out on the street going for "walks".

I know the PM said it was OK, but you should really just STAY HOME!

No way.
Walking is fine and important.
If its in most suburban areas of Auckland you can stay isolated from others when you are out walking.
Also what's wrong with fishing, if you do it alone or with household members.
We need some balance here. It's not healthy staying inside for 4 weeks with no exercise.

It's not healthy catching COVID-19.

Stay at home!

It's all about risk management. Transmission mostly occurs indoors. It's very very safe to go for a walk in a suburban area.

Yes, it is all about risk management. This is a global viral pandemic. You can mitigate the risk substantially by staying at home.

Unknown to many it seems, is that you can do a lot of exercise at home - aerobics, run/walk around the house/yard, yoga, shadow boxing, skipping,... use your imagination.

Good, you can do that. Me, I will go for walks, noting that is consistent with the government's instructions.

Just been out for an hour, beautiful. Plenty of Vitamin D which is good for immunity and wellbeing. Few out and about but very dispersed. Over one hour only had two possibilities of walking past someone, to be super careful I said 'hi' and crossed the road.
No issue.

Fresh air, sunlight, exercise....all extremely important for one's mental health too - and at this time it is important to ensure that we're in a good headspace!

You'll get some balance when this 4 weeks exercise fails and costs us about $10b of our gdp.

Exactly this lockdown will go for months, and it will get stricter. Look at China, Italy, Spain, and France for inspiration.

You will not be allowed out of the house - period.

Personally, I am optimistic it is going to be successful.

Nope walking is fine - just stay 2 meters away from other people

Might just be a reflection of the people around you :D - just kidding. Most people I've been in contact with are taking it serious!

I would like to think so, But I doubt it.

Just read the questions coming out on social media, or look at the corporates trying to claim "Essential" status.

Way I see it, going to the supermarket is far more dangerous than going for a walk to the beach or fishing or hunting alone.

Our son has excluded us from his 'bubble' (meaning we can't see the grandchildren) but he is in our 'bubble' as he's doing all our shopping.

He's a good son :-).

You should be commenting on the realtime implosion of RMBS and the locking up of mortgage funding markets in the US

Have a read of this - https://www.zerohedge.com/markets/mortgage-massacre-continues-mounting-m...

Property owners in NZ should be watching this trainwreck very closely in the coming weeks.

This phenomenon is a symptom of the "refi" or more correctly the pre-payment risk attached to mortgage bonds when term sovereign interest rates are falling. The implied maturity of pooled residential mortgage bonds shortens, hence prices collapse, as individuals refinance their pooled mortgages to lower rates without penalty or time restrictions, in the US. Once a certain level of refinanced mortgages is reached the pools have to be dissolved and repaid at a much earlier maturity (this is when the term convexity is invoked). Professionals hedge this risk by purchasing basis matched US Treasuries or futures equivalents. But in a volatile environment things can get out of control if the cash provider of the repo leg no longer accepts mortgage backed securities as collateral, which in turn causes a stampede to US Treasuries to manage the carnage with acceptable collateral and stay liquid.

It is clear to some that the Fed competing for pristine collateral at the same time with it's QE programs is not helpful.

This is not a feature of the NZ financial landscape as far as I know.

And in the US, this time will be different to the mortgage crisis of 2007/08/09 - as there will be no law enforcement prepared to enforce evictions so that mortgagee sales can be conducted. People will just (technically) squat in place.

Previously from the RBNZ:
The Reserve Bank introduced broader domestic market liquidity measures and the Term Auction Facility (TAF), while the government provided domestic and wholesale funding guarantee schemes for eligible institutions.

Those measures helped banks to maintain access to funding, but they also carried a cost. They arguably increased moral hazard, affected the Reserve Bank’s balance sheet and burdened government finances with a contingent liability. Measures such as the TAF are also not a long-term solution, as eventually banks will run out of eligible collateral and the central bank would have to accept collateral of decreasing quality.

Seems they (financial institutions) have run out of collateral already or are not in need of liquidity injections at the moment.

Yo editors you've been quoting the NZ 10 yr on 1.46% for at least the last three days, and it's totally wrong. Currently just over 1%, up from 0.96%.

https://www.youtube.com/watch?v=YgGvd1UPZ88

Peter Sellers as Trump: "all is well, and all will be well in the garden"
In 2 weeks, Mr trump says. What a cretin

The film IDIOCROCY was supposed to be set in 2500 but in reality it was a pisstake of current America.

What did is up to, along with all other central banks, is attempting to suppress interest rates still more, in order to stop the debt markets imploding (MBS, junk corporate, CDos and other weapons of mass destruction)
Now they want to buy distressed corporate debt (this is all the crap that arises from Companies borrowing to sustain unsustainable share prices) What a crock. And meanwhile we are told they are all in it for US. Ha.

Ray Dalio's latest thoughts released a few hours ago for those interested:

As you know for the last couple of years I have been observing a number of big important developments that concerned me that hadn’t happened before in my lifetime but did occur in the 1930-45 period and a number of times before then. They are the confluence of 1) big wealth, values, and political gaps, 2) zero or near-zero interest rates in the three major reserve currencies making monetary policy ineffective, 3) large debts, and 4) emerging conflicts between a rising world power (China) that is challenging an existing power (the US). Because of these concerns, over the last 18 months I have been studying the impact of these forces and the rises and declines of past leading empires and their reserve currencies. These studies led me to believe that when the next downturn came along there was a significant risk that we would see similar events to those that happened in 1930-45 (and many times before that for similar reasons), which would lead to a big shift in the world order. Then the coronavirus and its impacts on the economy and markets came along, so we are now in a downturn and facing these circumstances.

Goldman Sachs has advised clients it’s time to buy gold (quite late I’d say), and gold looks to be moving up after the initial sell-off. ‘Nuff said.

I wouldnt be surprised the see it drop down again as the over leveraged need liquidity, and whatever happens with USD, but if you have held gold for more than 12 months you will likely still be selling at a profit.

The name of the game is survival. Preservation of wealth as opposed to maximising returns.

It will be interesting what the next few months bring as the paper and physical markets continue to decouple.

Yes, it’s up 42% in NZ$ for 1 year, 18% in $US so far, the change in currency rate being the difference. No doubt it will go up and down for a while, but ultimately up, up, up as we head into very deep recession and the realty of that sets in. No surprise if it goes way past all time highs. Not that far to go there.

The problem with gold (and silver) is being able to understand to what extent the Vampire Squids and JPMs are allowed to manipulate the price. I think it will eventually get to a point where it doesn't make sense for them to do so anymore, particularly if the public demand for physical reaches a nexus point. We appear to be approaching that situation.

Yes, there will be huge demand. It's already started, exacerbated by the supply chain problem at the moment of getting physical gold.
The Gold Market Is Breaking Down": Gold Spreads Explode As LBMA Warns Of Liquidity Problems
https://www.zerohedge.com/commodities/gold-market-breaking-down-gold-spr...

On the NZX today looks like some people think theres going to be a fairytale here. Get ready for dead cat bounce number 8,I think were up to.

Yep, no way this is the end of the crash. We haven't even had economic data out for the first quarter, and then, the second quarter will probably be one of the worst ever.

A quote from Matt Ridley relaying results from Vernon Smith (economist, experiments in labs) seems apropos here: from 'Rational Optimist' (Interestingly, he notes one threat to all that Optimism is 'a pandemic flu' - this written in 2010....)

Markets in goods for immediate consumption - haircuts and hamburgers - work so well it is hard to design them so they fail to deliver efficiency and innovation; while markets in assets are so automatically prone to bubbles and crashes that it is hard to design them so they work at all.

May explain something of the current ferment....

Hand outs are now so lucrative that essential factory workers are preferring to sit at home. It is a fine balance and we may be killing the food supply chain with kindness.

This American nonsense of bailing out people who have borrowed ( or lent ) recklessly just makes it too easy to be reckless without consequence

I have been reading the Wall Street Journal , and this stock market rally , is in my opinion, a classic DEAD CAT BOUNCE .

Reading it was my WTF ? MOMENT for today ............... headline reads :- " DOW HAS ITS BEST DAY SINCE 1933 "

WTF...Absolutely agree, trump, against his pre-election promises, had already moved the country into unsustainable debt to the tune of 1.3 trillion USD from 552B when he took office 3.5 years ago, BEFORE covid (which is one of the few things which is not trumps fault). Now another couple of trillion on top of that. The USA is not like a trump business where you can just claim bankruptcy and walk away. And yet this is what he will do and claim it was the Democrats who ruined it all.
He moved the country into this high debt in good times when anyone who has an even basic economic education know you just don't do this. You pare down debt in good economic times. What he did with the corporate tax cut was create a false economy which had to blow up even without Covid. Stocks need to drop another 25-30% before they are realistically valued. They were stupidly overvalued before all this.
Where is it factored in that all this debt will have to be paid back. Paying back money is not how trump got to where he is today. He just doesn't understand the basic macro economics of how it all works, and neither do the majority of American voters, or he never would have been voted in.

I see the person in the photo 1/3rd the way down the article has found a practical use for the red bandana they always carry with them.

they have reinstated deprecation for commercial businesses