Breakfast briefing: Some ugly economic assessments

The US Fed and the OECD issue grim forecasts; the OECD sees a second hit possible in Q4-2020; Aussie and China bank lending both fall; UST 10yr yield at 0.74%; oil and gold up; NZ$1 = 65.5 USc; TWI-5 = 69.9

11th Jun 20, 7:18am by David Chaston

Here's our summary of key economic events overnight that affect New Zealand, with news markets are lower today, reacting to some grim economic assessments.

The US Fed has released its June meeting decisions and forecasts. They left rates unchanged and said they have no plans to change them anytime soon, not even in 2021. But their stimulus energy will continue unabated.

But they also said the recovery will be slow and painful. In their first economic projections this year, they forecast their jobless rate to end 2020 at 9.3% and remain high for years, and only coming down to 5.5% in 2022 in an optimistic guess. Output is expected to be -6.5% lower in 2020 than 2019. That is a grim prospect for the world's largest economy - and for the rest of us.

The US government’s budget deficit rose 92% in May from a year earlier to almost -US$400 bln. Tax revenues plummeted by a quarter and spending surged +30%. In the twelve months to May the US fiscal deficit blew out to -$2.1 tln, it highest ever and topping 10% of their total national economic activity. It is banana republic stuff.

And more debt is on the way. Their Treasury Secretary said in Congressional testimony that more corporate aid will be needed.

And the US isn't the hardest hit large economy. The OECD sees a grim and uncertain immediate future for the global economy with a second hit coming at the end of 2020 - in their words, a collapse followed by a slow recovery. We are in the deepest peacetime recession in more than a century.

For Australia, they project a Q2-2020 decline at the annual rate of about -40%. For New Zealand they see an almost -50% decline. Both countries get a big bounce in Q3 according to their projections, and that may be followed by a second hit in Q4, harder than for the Aussies than for New Zealand.

In Australia, mortgage lending to both investors and owner-occupiers has fallen sharply in March and April, a five year low, and economists say it is likely to fall further in coming months before it recovers.

China's consumer inflation eased to +2.4% in May, down from +3.3% in April as food price hikes, especially for pork, eased. Prices for lamb and beef also eased but only marginally. But Chinese factory deflation picked up sharply in May with prices falling -3.7% year-on-year and that is the fastest fall in more than four years.

And new bank lending growth in China fell more than expected in May from the previous month, retreating 13% in a month. Only vast new bond stimulus money saw their overall debt levels rise.

The latest compilation of Covid-19 data is here. The global tally is now 7,291,500 which is up +169,000 in a day, and a faster rising pace. Brazil has restored its daily reporting. Global deaths now exceed 413,000.

Just over 27% of all cases globally are in the US, which is up +21,000 since this time yesterday to 1,989,500. This is also a faster rate of increase. It is becoming clear that 'reopening' is raising the infection rate. US deaths now exceed 112,000.

In Australia, there have been 7276 cases (+9 since yesterday), 102 deaths (unchanged) and a recovery rate of just over 92% (unchanged). 20 people are in hospital there (+1) with 3 in ICU (+1). There are now 430 active cases in Australia (-15).

Wall Street is down marginally today after a -0.8% drop yesterday. Overnight, European markets fell about -0.7%. Yesterday Asian markets were mixed with only very minor change. The ASX200 was flat while the NZX50 had another down day.

The UST 10yr yield is down sharply by -9 bps to 0.74%. Their 2-10 curve has flattened off further to +60 bps. Their 1-5 curve is also flatter at +17 bps, but their 3m-10yr curve is also flatter at +65 bps. The Aussie Govt 10yr yield is down -5 bps to 0.99%. The China Govt 10yr is unchanged at 2.85%. And the NZ Govt 10 yr yield is marginally softer, down -1 bp to 0.95%.

The gold price is marginally higher, again, rising by another +US$3 to US$1,718/oz.

Oil prices are higher today. They are up more than +US$1 to just on US$39.50/bbl in the US. The Brent price is up to just on US$41.50/bbl.

And the Kiwi dollar is a little firmer at just on 65.5 USc. On the cross rates we are marginally softer at 93.4 AUc. Against the euro we have are firmish at 57.7 euro cents. That means our TWI-5 has hardly changed at 69.9.

Bitcoin is virtually unchanged for a seventh straight day, now at US$9,777. 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 currency charts are here.

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125 Comments

by bw | 11th Jun 20, 7:32am 1591817567

"The OECD sees a grim and uncertain immediate future for the global economy with a second hit coming at the end of 2020...a collapse followed by a slow recovery... For New Zealand, they see an almost 50% decline.."
A great time for us to be hitting the shops and travel agents and spend, spend, spend. Or even better, the mortgage brokers - borrow even more and spend. (That 'slow recovery' bit after the 'bounce'? Add a time frame, say 10 years, and it might have more relevance)

by murray86 | 11th Jun 20, 7:40am 1591818041

Whatever you do, DON'T borrow! Personal debt is never good solution to a pending economic crisis. Besides borrowing only puts that money into the banks coffers, and they don't need it, and shouldn't get it. At least not up front. If you must spend, try to spend in your community, and try to buy NZ made.

by Jolly Penguin | 11th Jun 20, 7:49am 1591818547

Easy to say, but what if you want somewhere to live where you are not subject to the whims of the landlord?

by murray86 | 11th Jun 20, 7:55am 1591818925

I wouldn't advise people to be buying a home yet. I personally think the worst of the COVID outcomes are yet to be seen. And the reports are starting to come out to support this view. So it is fine to want, but wait - better deals are coming.

by Foyle | 11th Jun 20, 10:07am 1591826829

3% for 5 years available now is pretty attractive for anyone buying a house if you are worried about medium term financial instability. Makes it almost universally cheaper to have a mortgage than rent, even in Auckland.

by youngdumbandbroke | 11th Jun 20, 10:27am 1591828042

provided you have a deposit and don't mind riding out any dip in market prices

by Mike1 | 11th Jun 20, 11:36am 1591832186

Not correct at all in my experience Foyle. We are getting rental rates far below mortgage costs.

by Foyle | 11th Jun 20, 2:08pm 1591841314

I assume at higher end of market? A first home buyer with 20% deposit and ~$700k borrowed over 30 year would be paying about $400 a week in interest. You can't rent a house for that. Of course principle repayments bump that up to $680, but that extra $280 is investment not purely a cost.

by Pragmatist | 11th Jun 20, 7:13pm 1591859625

then add maintenance, rates, insurance.. they aren't insignificant

by RickStrauss | 11th Jun 20, 2:48pm 1591843737

A lot of renters can move out of their rental and move in with relatives, friends or in a shared rental without too much trouble if the ship hits the flan. That is another factor.

by Independent_Observer | 11th Jun 20, 8:40am 1591821652

That's the ridiculous position that our decision making has put us in the last few decades, especially for FHB's...don't buy and be subject to the whims of the landlord. Do buy and you could see all of your hard earned deposit wiped out this year - potentially never to be seen again (if we do a Japan and see the market decline for who knows how long - decades?).

by GV 27 | 11th Jun 20, 8:56am 1591822572

If FHBs had mattered at any point then they wouldn't have been expected to pay ridiculous prices. But that was fine, so we can assume that FHBs are collateral damage for investors.

by Independent_Observer | 11th Jun 20, 9:01am 1591822897

This is why I've been boomer bashing - because they've thrown future generations under the bus for their own short term, unsustainable benefits.

If you look at fiscal and monetary policy of the last 20 years, its been all about maximising the benefit of a certain generation while not giving a toss about the future.

Standing by for the angry stale, pale, males (some who just sold houses and made a $1 million untaxed capital gains).

I don't like this - but there appears to be some truth in it - as I didn't see the greatest generation pumping asset bubbles for their own benefit. If anything it was the opposite - they were doing things to make life better for the boomers. But I can't say the boomers are doing the same for the benefit of generations that follow them. Just look at the news - its all falling apart because of the self interest and lack of humility and planning for 'others' and the 'future'

by Foxglove. | 11th Jun 20, 10:08am 1591826912

IO just as a matter of interest if you at 30 yrs age in 1985 had bought your first house, bearing in mind prior to that it wasn’t all that easy to actually get finance. worked steadily at a career, upgraded your family home a couple of times, all the time reducing the mortgage, helped with educating a couple of children, retired at 65yrs with a free hold house which you still live in. Assuming that defines a Boomer what exactly would you as an individual have done differently in terms of just leading an ordinary respectable and responsible life, gone with the flow under the influence of whatever government policies affected you. Not having a go here. Just curious as to why this sort of Mr Surburban example deserves to be demonised.

ps. edit, apologies my original above arithmetic was wonky

by Lapun | 11th Jun 20, 9:40am 1591825249

Interesting. I realise my parents aged about 25 when they had me, worked hard and bought a house in their early forties and retired with it paid off in their early sixties. I've done similar but bought my first house in my late-twenties (not encumbered with children) paid it off and I'm now retired. My son bought his house in his mid-thirties with help from an inheritance unlike me or my parents but the other five children I've accumulated (with four in Auckland) seem to have little chance of buying property although they might be able to afford it if they had the same income but lived in rural NZ. maybe if my wife and I die half of them will have enough inheritance to put down a deposit and become FHBs. Its a tough world for young Kiwis and these days depends more on your parents than your own hard work and abilities.

by Independent_Observer | 11th Jun 20, 10:38am 1591828697

Driving interest rates to zero over the period of your working life has given you significant advantages. It all looks to be related to the decision to run inflation targeting, which includes housing costs, yet housing costs are related to interest rates that are set by inflation (an odd chicken/egg scenario going on here), so we keep driving rates to zero and wonder where the inflation has gone - its in the prices!

If I look at the average boomer who probably purchased their first home about 1980, probably for about $20K. Then retiring about now, with probably about an average wage for a boomer of $100,000 (i.e. above the average wage given experience/being in a management position). So they are earning 5x the cost of their first home at the end of their career.

Now if we look at what is ahead of current generations - if they were to experience the same benefit, they should expect to be earning around $3.5 million a year by the time they are 65 (i.e. 5x the cost of the current house - approx $700,000). But for wages to get that high, we'd need significant inflation - which if that happens, it means interest rates are going to be significantly higher, and because there is so much debt in the system already, it means that this debt isn't manageable...

So basically what has happened from both fiscal and monetary perspectives has been significantly to the benefit of boomers and any attempt to balance things out to make it fairer for future generations will collapse the system - i.e. its unsustainable.

So you can pretend that it wasn't your doing, which it wasn't on a personal level, but it was at a collective level.

How about we remove inflation targeting with dodgy CPI measurements? If you look at house prices in real terms, prior to the 1990's, they were pretty much flat. Now that we've run this system, house prices (in real terms) have gone into the stratosphere - like the biggest bubble you can imagine. Dwarfing anything we've seen! But the boomer generation are like 'this is great' - I'm getting rich. Who cares about future generations? I can flip houses and make $1 million profits in 7 years like Yvil. Why work when you can earn more by speculating on asset prices?

The system your generation has created is insane and most probably unsustainable in my view - unfortunately, because I'm a human being, I have to live with it and deal with it, even thought I didn't create it. Those with the grey hair now did and they think its great - but they appear to care little for anything other than themselves - hence the mess we find ourselves in. Or if they say they care about future generations, they're only referring to their own children, but don't appear to see how the whole system is interdependent and by attempting to promote the financial interests of your own children, you are causing financial suffering for somebody else's children.

by Ngrrk | 11th Jun 20, 10:57am 1591829878

Very well articulated. The intellectual hoops many of the 'boomer' generation have to jump through, to justify their position, is frankly astounding.

by RickStrauss | 11th Jun 20, 11:00am 1591830047

Excellent post. And yet people will nominally yell for conservatism while living off the preceding and succeeding generations through exactly this method.

by Foxglove. | 11th Jun 20, 11:08am 1591830496

You have much generalisation in there and you don’t answer the question as to how you as an individual would have approached life differently. The point is rightly or wrongly the vast bulk of ordinary people simply live their lives and end up going where the politicians lead them. And in that regard there is a telling turning point that has to be considered, because it may well have helped creat the present circumstances that you resent so much. The 1972 Kirk Labour government introduced ACC, compulsory super-an, the concept of satellite towns on a rail link, eg Rolleston, and The Property Speculation Tax, they stiffened up too the NDF. They also stopped a South African tour. All of that, barring ACC was voted out by an electorate consisting of mostly generations older than what are now the present so called boomers, and thus became Rob’s mob. Can’t change history anymore than you can blame people for setting about their lives in the circumstances available and allowed.

by Independent_Observer | 11th Jun 20, 11:19am 1591831160

What are your thoughts on the Germans in the 1930's and 1940's? No responsibility as individuals, they just had to go with the flow and do what the politicians, rightly or wrongly, told them to do. Which is the basis of your argument above.

You could stand up against this culture of landlordism and property speculation and driving interest rates to zero, and QE - but as a generation you don't because you like the value of your property (portfolio) going up. Its self interest - which is fine. But it would be nice if as a generation, you admitted it.

by Foxglove. | 11th Jun 20, 2:33pm 1591842825

You do the German nation a rather unsavoury disservice. The concentration camps were full of, and the gallows and guillotines were well exercised by those that objected to the Nazi regime. It is ignorant and malevolent to dishonour 000’s that attempted exactly what you proclaim.

by murray86 | 11th Jun 20, 11:18am 1591831103

IO, with your 'Boomer bashing' - how many boomers do you know actually had the ability to set the interest rates of their first mortgages, managed the market price of houses, or were able in anyway to significantly influence the price of houses, interest rates since? And if they could, then why can't you? Boomers were born into and raised in the environment at the time, they didn't get to choose, and more to the point couldn't change it. Boomer Bashing is as intelligent as racism. In other words it is as dumb as you can get!

If you want to blame someone, look to your politicians because it is they who have shafted generations, often to their own benefit, either through action or inaction. Wealth redistribution is just petty jealousy in another colour. If you have a problem with it, look to your politicians and ask what they are doing to ensure your and subsequent generations get a fair go at the trough!

Hating someone because they have something you haven't, or had an opportunity you didn't, or achieved something you didn't, is a measure of your character that you should be ashamed of.

by Independent_Observer | 11th Jun 20, 11:26am 1591831561

Right, so I'm trying to work towards equality for future generations but get told that I'm similar to a racist. What I'm arguing is the complete opposite of racism, I'm after fair rights between generations.

Want to double check the line of your argument?

by murray86 | 11th Jun 20, 11:57am 1591833451

I can tell you I complained long and loudly about the 23% interest rate i had on the mortgage of my first home. Made not one jot of difference!

I agree with you about a fair go between generations. As to blaming the boomers, it is just like racism. It is mindless. I have spoken to politicians politely, ranted at them, written them letters all to no avail. Told one National one I wouldn't be voting for National because of their policies. Guess how much difference it made? NOT ONE JOT! Voted Labour that time, guess what? They broke a few electoral promises! Blaming boomers is like racism - it is mindless AND stupid!

Ask instead how we can sack a Government without having to wait for an election? Ask instead how we, the people can hold our politicians to account better? Ask how politicians can be held directly accountable for the consequences of their actions while in office? (Consider JK and the changes he made to some of our international agreements as detailed on this forum over a few articles in the last week that helped to screw the property market)

by JimmyJames | 11th Jun 20, 12:28pm 1591835314

But Boomers loved John Key BECAUSE he did nothing while this abhorrent banking transferred wealth to asset holders. That's what they wanted, we know because that's what they voted for, because as Mike Hosking outlined in his article titled "House prices represent success in life" - 2015. How can you sack a government that was overwhelming voted for by a generation because they were benefiting from the wealth transfer at that time?.

by murray86 | 11th Jun 20, 12:37pm 1591835841

You mean some Boomers loved him? I would suggest that the real reason they voted for him was because they had come to see Helen Clark for who she truly was, and Labour had been in for too long anyway. Just because you're a fan of Hosking doesn't mean you can peddle his BS here.

by JimmyJames | 11th Jun 20, 12:45pm 1591836310

Obviously I’m not a fan of Hosking. What idiot would think rapidly rising house prices is a sign of success. I quoted him because he represented what many boomers believe and why John key appealing to them.

by murray86 | 11th Jun 20, 1:25pm 1591838743

Jimmy (were you ever in the Airforce?) I agree completely about the intergenerational unfairness. But boomers are by no means the largest voting block, so why blame them for the problems? They were no more in control of the economic situation in NZ than you and IO are now. So in response to yours and IOs rants, why blame the boomers who had no control, and not the politicians who did it all? If you think they should have voted differently, why don't you and your generations vote differently to get politicians in place who will change the current situation?

by ham n eggs | 11th Jun 20, 2:10pm 1591841432

"But boomers are by no means the largest voting block, so why blame them for the problems"

Because the debt is already locked and loaded and the resources have already been spent
Too late now to turn the train

by Independent_Observer | 11th Jun 20, 2:03pm 1591841037

What kind of interest rate were you getting on your savings when mortgage rates were 23% - better than the 2% now on a term deposit?

Note that high interest rates suppressed prices and provided higher returns for savings making it easier to put together a deposit. But now we have low interest rates and sky high prices, meaning saving for a home is almost completely out of reach for many. I.e. the complete opposite of what you experienced in the 1980's and completely for the benefit of you and not the current generation attempting to save.

by murray86 | 11th Jun 20, 2:55pm 1591844149

Didn't have enough to save but I think 10 - 12% at the time. And IO no one i knew had the spare to afford to save. We instead found other ways to get around the deposit problem. Our first home was achieved by borrowing from three places. As military we could get a small amount under Government Service rules at a low(er) interest rate that met the first criteria, my wife worked at the ASB and she could get a loan at staff rates, that was a bit more, then the normal ASB mortgage got topped up to do the rest and that one really hurt! If you think that the people in their twenties and thirties had cash to spare to enable saving, have another think. We were on the bones of our arse, and it was only through considerable sacrifice that we managed to buy our own home. There was no spare money at all, the car was a cheapy i could fix myself, no holidays that cost anything at all.

by al123 | 11th Jun 20, 3:31pm 1591846265

I don't understand - apparently you were so broke you couldn't afford to save anything at all, yet you managed to buy a house with no deposit, and you managed to service the mortgage at 23% interest rates even though before you even bought the house you had no spare money at all?

I don't know if you realise this - but these things you are describing is hardship don't really sound like it. You didn't have an expensive car (not much of a hardship!). You could afford to take holidays - so you could at least manage to get time off at the same time presumably, and they must have cost something, even if not very much. Again, being able to take expensive holidays is nice, but not being able to isn't exactly a hardship. You managed to buy a house with no deposit, and presumably the cost of servicing the mortgage, rates, insurance etc was either less than or equal to your rent, seeing as before you bought the house you had no spare money at all to put towards the deposit.

Being in that position - being able to buy a car, being able to take cheap holidays, being able to buy a house with no deposit, where the costs of servicing the mortgage are about the same is rent - that sounds bloody great from my perspective. Can I ask how old you were when you bought your house, and what it was as a multiple of your income?

by Foxglove. | 11th Jun 20, 4:41pm 1591850506

Amongst all of that you touch on a very significant factor and that is earning power. Up until the corporatisation of Rogernomics, you could expect the boss to be earning about half as much again as someone in middle management. Nowadays you have not just the one boss but many others earning way beyond the average of the contemporaries working in the lower levels. National and local civil servants is a glaring and valid example of this change. How much then has the reduced earning power pro rata, contributed to the emerging generations difficulties when stating out, in terms of an initial house purchase. Seeing as how past generations are being accused of having failed to influence politicians to prevent the current dilemma(s) then perhaps those now concerned and now in their shoes could take up the challenge and set out and show how it can be done today in this regard.

by murray86 | 11th Jun 20, 5:52pm 1591854775

Early 30s, and the house (Pahi Pl, West Harbour) cost $80 K (about 1985), and I think at the time my salary was circa $20K. It was not cheaper than renting for the first couple of years at least, but got us started. And yes we tightened our belt severely to make it work. I'd had the car from before getting married and just kept it running myself (Mk 4 Cortina, had 240 k on the motor when i overhauled the motor, and put another 200 k on it before I sold it). No holidays though - we couldn't afford them. I was a SNCO in the Airforce. Around the same time one of my staff came to me for help. He was a CPL with 4 children and his pay actually put him below the official breadline at the time. It was not easy.

by al123 | 11th Jun 20, 7:46pm 1591861578

I'm sure it wasn't easy - but I hope you can appreciate that that was actually a fantastic opportunity not available to young people nowadays. You were able to buy a house, in your early thirties, not having saved anything at all, that cost about 4x the salary of one earner - and in the most populous city with the best employment opportunities to boot. Put it this way: even taking into account interest rates of 23% rather than 3% as they are currently, I would be heaps better off under the conditions you faced than under current conditions.

by al123 | 11th Jun 20, 11:27am 1591831652

"Look at politicians" - but that's at least partly the point. Politicians don't just do things for their own benefit, or on a whim. Policies of political parties get shaped by what they believe will be acceptable to the electorate. Behaving is though you have no responsibility whatsoever for anything because you are just an individual is a bit of a cop out.

by murray86 | 11th Jun 20, 11:58am 1591833503

Al look at my response to IO above.

by RickStrauss | 11th Jun 20, 2:52pm 1591843931

How many had the ability to vote for CGT rather than shrieking at the mere prospect of it?

Politicians campaign for votes. Voters influence politicians.

So...the wealth distribution from preceding and succeeding generations to older asset owners, as well as landlord subsidies, is just petty jealousy in another colour. Interesting.

by JimmyJames | 11th Jun 20, 11:25am 1591831541

Excellent comment IO,
It's discouraging how willfully ignorant many Boomers are regarding how this dying monetary system has favored them at the expense of future generations. They are the property investment generation. Even children understand the logic of the game of Musical Chairs i that there are not enough chairs to go around therefore someone will miss out. Boomers took it to the next level by getting to the game a generation earlier, taking more chairs than they needed and putting "for rent" signs up on their surplus chairs before the music even began to play.

by Independent_Observer | 11th Jun 20, 11:34am 1591832088

But that is the thing - there are enough houses to go around - its just that some people have decided that its their right to own 5, 10, 15 or 20 of them - or for many they just leave them empty as a tax free store of wealth. Its completely insane.

Houses should be homes, not wealth generating mechanisms. Its a culture that is destroying our culture (that used to be good - you know 'communities and happy families' not greed and self interest).

by JimmyJames | 11th Jun 20, 11:38am 1591832320

The most frustrating thing is that the people I know in my life with large property portfolios are often somewhat unhappy, which is hard to process. It's caused large social disconnection and divide. Something was lost along the way.

by Independent_Observer | 11th Jun 20, 11:46am 1591832764

Greed and taking from others isn't a recipe for happiness. Serving others is.

by Ex Expat | 11th Jun 20, 11:50am 1591833038

To take from others implies it belonged to those people. Who had what taken from them? The opportunity to own a home?

by RickStrauss | 11th Jun 20, 2:53pm 1591843989

Is that arguing it's impossible to take from others opportunity, wealth, potential earnings etc. via policy?

by Ex Expat | 11th Jun 20, 3:57pm 1591847855

I can take an opportunity to purchase a property, thereby denying someone the same property but I don't see how I can take it from them.

by Foxglove. | 11th Jun 20, 2:30pm 1591842628

Exactly what percentage of so called Boomers own more than just their own family home? Seeing as you are labelling some of them as property investors you must have some stats on that surely.

by oldbloke1 | 11th Jun 20, 4:01pm 1591848076

I suppose I'm a boomer - I'm over 65. I've owned 3 houses, consecutively. The first 2 required a mortgage to buy - the first was a mortgage from a solicitor, the second from a bank, just as interest rates started rising in the 1980s. The third we were able to buy outright, selling the second in the Auckland area and moving to a less expensive region. I don't see my current house as an investment, but as a place to live.

by Foxglove. | 11th Jun 20, 4:51pm 1591851105

I have never owned more than the house I live in. The first challenge was to get a mortgage, the next to pay it off as soon as possible. That applied to all of the four houses I have owned and two of the changes were due to location changes by work transfers. Somehow I never foresaw going about life like that, taking care independently of my own business and family, would result in me being accused of shafting someone else.

by Mike1 | 11th Jun 20, 11:35am 1591832100

Jolly Penguin as a new consumer of rentals in NZ I can assure you landlords are VERY flexible. Rental rates are suggestions only and you can ask for and get basically anything you want. There are a few we have encountered who think they still are in control. I've followed up with anyone that has acted like this and the tenants they found were always described as a "group". I followed up again recently to find out what a "group" was and it is large groups of migrants that will lose their legal status here around election time.

by al123 | 11th Jun 20, 11:40am 1591832430

Wow. That's not been my experience at all in the past (pre-covid) - instead its been the case that tenants have essentially been asked to outbid each other. I am looking for a place now, and the property manage I spoke to basically still had the 'old' attitude - she acted as though my ringing to ask about the place was a massive imposition and seemed put out that I asked basic questions like 'what kind of lease is it'? Can I ask where in the country you are Mike1?

by CourtJester | 11th Jun 20, 12:34pm 1591835648

Even before the lockdown (about a year ago), my experience in Auckland (North Shore) was that under $600pw you are nothing and you mean nothing to the landlord / property manager. You are one of the 120 people who want to live in that house.
Over $600pw: you are the only one at the open home, you can negotiate, ask for some repairs in advance, 'free' lawn mowing etc.

by Mike1 | 11th Jun 20, 12:48pm 1591836507

Hi al123. That was so much my experience here pre-covid that I stopped even coming to NZ. I used to rent here for three months a year but got sick of the unbelievable lack of professionalism in the NZ rental market. Total third world behavior here was routine. Now it is almost comically different.

You guess that I am somewhere with higher than average problems is correct. My market is Queenstown-Lakes district.

by Boatman | 11th Jun 20, 1:34pm 1591839283

Its currently still cheaper to rent than buy a house in Auckland ...........it will change , but as of now its still cheaper

by ham n eggs | 11th Jun 20, 9:03am 1591823036

"Whatever you do, DON'T borrow!"

Money is closing in on being free
So it doesnt matter if you borrow ...
When fiat collapses, so does the debt

by Audaxes | 11th Jun 20, 9:40am 1591825234

Receivers will surely seek to reclaim the collateral on the lender's behalf.

by ham n eggs | 11th Jun 20, 10:35am 1591828521

I think at this point there is no (valid) currency and therefore no lender
The old rules wont apply

by zorba - old | 11th Jun 20, 10:36am 1591828564

Debt never goes away, even if you declare bankruptcy, you are forever tainted..

by ham n eggs | 11th Jun 20, 10:49am 1591829386

Money IS Debt
If fiat collapses (which it will) then ditto, debt claims collapse

Theres a reason central banks have no choice but to pump markets full of debt .... ie to stop debt from collapsing
Leverage only works one way

by CourtJester | 11th Jun 20, 10:39am 1591828780

Deflation says hi

by theglc | 11th Jun 20, 9:35am 1591824955

Im trying not to buy anything made in China.

Its not easy but there are a lot more alternatives than you think

by Battinz | 11th Jun 20, 10:50am 1591829459

The market can stay irrational longer than you can put off having children.

by northman46 | 11th Jun 20, 7:46am 1591818391

Funnily enough, our broker contacted us yesterday to see whether we'd like to get pre-approval to be buy ready. Yeah nah.

by youngdumbandbroke | 11th Jun 20, 1:29pm 1591838940

Im sure he had your best interests at heart...

by sit23 | 11th Jun 20, 7:38am 1591817898

Our economy will go down by whatever our primary product overseas sales go down by, plus whatever our tourism goes down by. If we get enough tourists to keep Kiwis employed, without borrowing employees from foreign countries, there shouldn't be too big a problem. The whole world has been sick of cheap budget mass tourism for years, so if it never comes back, I for one am happy to miss out on all they bring us.

by Richardfromauckland | 11th Jun 20, 9:38am 1591825133

Agree with your last part. We've sold out NZ to cheap tourism which just isn't sustainable (and ignoring how much tourism revenue is expedited offshore rather than recycling in the economy). But my bigger concern now is that the objective seems to be trying to find ways to get back to how things were, rather than using this as an opportunity fine new avenues for growth.

by Averageman | 11th Jun 20, 10:21am 1591827714

Agree. Hopefully the Virus is the end of cheap vans carrying young tourists, who leave rubbish and poop everywhere. Lets rebuild with less, higher value, low impact tourism.

by Ben72 | 11th Jun 20, 7:41am 1591818090

OECD Grim forecast
https://mobile.abc.net.au/news/2020-06-10/coronavirus-oecd-calls-for-ex…

by powerdownkiwi | 11th Jun 20, 8:00am 1591819236

https://www.patreon.com/posts/appallingly-bad-38048063

Keen in full flight.

by powerdownkiwi | 11th Jun 20, 10:22am 1591827758

Compare this:
"That is a grim prospect for the world's largest economy - and for the rest of us".

with this:
https://voiceofaction.org/collapse-of-civilisation-is-the-most-likely-o…

Yoiu sure you're on the right track, DC? Seems to me the latter is the slightly grimmer prospect. But what would I know; I'm not an economist and I don't promote GDP :)

by Independent_Observer | 11th Jun 20, 8:36am 1591821414

As long as house prices keep rising PDK, you won't need to worry about this stuff too much. Because at the end of the day, does anything else really matter, including the world that we live in? As long as the central bank can keep fiddling the numbers so house prices rise, climate change....who cares! (note significant sarc).

by RickStrauss | 11th Jun 20, 10:22am 1591827735

The joys of Anti-Burkean Pseudo-Conservatism.

by ham n eggs | 11th Jun 20, 8:45am 1591821916

Its the environment OR the economy
When the economy is based on leverage you reach a point where you simply cant have both
And humans are predisposed to discount the future
Its now that matters

by stuart786786 | 11th Jun 20, 8:16am 1591820162

....Grim Forcast.....

And I thought that things are getting better after reading news in other places that will be out of woods soon. My colleagues received a call from his finance broker for pre approval advising that it seems that the worst is over as rate of virus is falling and giving example of stock market, which is on rise and how even house price may go up just like stock, soon.

Really, Is the worst over ?

by Independent_Observer | 11th Jun 20, 8:33am 1591821200

For house prices to rise significantly we would need to see significant increases in wages and banks encouraging lending - across the board. But people are losing jobs or taking pay cuts with possibly worse to come.

by Kezza R | 11th Jun 20, 8:47am 1591822079

Stagflation?

by Independent_Observer | 11th Jun 20, 8:54am 1591822498

Appears to be the general consensus of the vast number of articles and youtube clips I've read/watched the last few months.

Rising unemployment, stagnant or falling wages, high debt, rise in CPI?

https://en.wikipedia.org/wiki/Misery_index_(economics)

by Kezza R | 11th Jun 20, 9:02am 1591822960

Yeah fairly much of what I read as well indicating this as well.

by northman46 | 11th Jun 20, 9:30am 1591824649

But it's OK, according to a weekly real estate mailer I received last night, because it's just poor people losing their jobs (ie Warehouse staff) who probably don't even own homes! Therefore, prices will go up.

Honestly, what cretinous scum bags, to even have the gall to email such a thing.

by Independent_Observer | 11th Jun 20, 10:43am 1591829011

Yes and the landlords forget who is paying their mortgages - the renter! Who if unemployment keeps rising, may not be in a position to continue to make rent.

by al123 | 11th Jun 20, 11:03am 1591830196

That's OK, IO - landlords can just do what they always threaten to do when things aren't going their way. Put the rent up! That'll totally work, right?

On a more serious note, I think landlords don't realize the level of simmering resentment they have caused. Whenever some landlord pats themselves on the back for being 'one of the good ones' I think yeah right, what do your tenants think? And it's entirely of their own making. Out of the landlords I have had (and I know most of them consider themselves to be 'the good ones' at least half have either attempted to rip me off in some way, either deliberately or out of ignorance. And I'm sorry, but if you're a landlord the very least you can do is spend 20 minutes looking up your obligations on the tenancy services site to avoid doing stuff that's actually illegal. And my experience is not uncommon - it's true of all of my friends too. Property managers are generally the worst. On top of that is the way you get treated by property managers - as scum, essentially. Expected to bow and scrape and be grateful to be able to pay an absolute fortune for a shitbox on which there is never any maintenance done and which you get kicked out of an average once a year anyway because 'the landlords family wants to move in' only to see it re-rented for a higher price a few weeks later. And for a lot of people they're not just putting up with this kind of shit when they're students - they've been putting up with it for 20 years now, while trying to start families and provide for their own future.

Landlords are going to get a rude shock when the shoe is on the other foot for a change.

by Independent_Observer | 11th Jun 20, 11:07am 1591830452

Yes I've had some good ones and some bad ones - many appear to have some strange superiority complexes going on. Like to have power and control over other people, but they failed in the work place or other parts of society so figure they'll become a landlord.

If you read up on the end of serfdom there could be some similarities there with the resentment that is brewing.

by Anzac888 | 11th Jun 20, 7:07pm 1591859254

Which Real Estate group? I'd like to ensure that this firm won't get any of my business in the future.

by ham n eggs | 11th Jun 20, 10:53am 1591829636

Stagflation cant continue indefinitely - (Japan had the luxury of growth in the rest of the world economy)
When a critical mass of consumers cant afford something, prices keep going down (regardless of cost of production)
A deflationary spiral is more likely

by Kezza R | 11th Jun 20, 1:41pm 1591839687

The Fed and Centeral banks will stop at nothing to create inflation. They can not and will not have deflation!

by youngdumbandbroke | 11th Jun 20, 8:53am 1591822397

Surely a finance broker, who he earns commissions off of his clients everytime they borrow more, wouldn't tell porkys ?

by NZChinese | 11th Jun 20, 8:18am 1591820304

"...a collapse followed by a slow recovery" OECD's two scenarios are spot on. We will have either a slow or slower recovery depending on the development of Covid19. Whoever has the disease under control will be the first ones to onboard the recovery bus, though the bus won't start until it has enough passengers.

by Andrewj | 11th Jun 20, 8:35am 1591821358

Unsustainable business loans
https://wolfstreet.com/2020/06/10/tsunami-of-unsustainable-business-loa…

by Independent_Observer | 11th Jun 20, 8:40am 1591821602

So back to where we were before the crisis - but now even worse. Our current philosophy when it comes to fiscal/monetary policy could well be defined as madness - repeating the same thing but expecting different results.

by CourtJester | 11th Jun 20, 10:41am 1591828909

Don't worry! They'll just have to throw a bit more money at it again! Problem solved for another few weeks.

by Independent_Observer | 11th Jun 20, 11:00am 1591830055

It feels like a race to the bottom simply to avoid what needs to be faced. It's almost a form of cowardice in some respects. I.e. running away from facing reality, which is that you can't use more debt to solve debt problems. But knowing that somebody else (future generations) will need to, on your behalf.

by Roger Witherspoon | 11th Jun 20, 8:57am 1591822671

The US fiscal deficit is not "banana republic stuff". That is nonsense, driven by an irrational personal dislike of the current president, with the emotional response fanned by his opponents' polarising and socially destructive propaganda. Please, let it be. We do not live in the US, thankfully.

Fiscal and monetary largesse in the US is really good for New Zealand. The US $ is the world reserve currency. Thus a rising US dollar causes world GDP to collapse, as well as US GDP. In order to stop this process from escalating the US has to open the floodgates on monetary and fiscal policy. This is the downside of having the world reserve currency (an "exorbitant privilege" only in the deluded minds of envious French Imperialists).

For New Zealand to do well we need to see a falling USD, as this means the world is being flooded with USD. It is in our interests to see falling USD interest rates, rising US fiscal deficits and a rising US trade deficit.

by powerdownkiwi | 11th Jun 20, 9:22am 1591824160

Firstly, GDP is a nonsense - indeed I call it a lie. It fails to account for the only stuff we need to account for, which is why the real problems don't show up in it. And why it should be being de-promoted, or ath the very least, only quoted with attached caveats (Warning, this measure flies blind).

Secondly, Kissinger (who had presumably read https://en.wikipedia.org/wiki/Wealth,_Virtual_Wealth_and_Debt ) linked the USD to oil, when Nixon unpinned the long-irreconcilable gold-standard. In that part, it means something. But this: https://www.statista.com/statistics/1083150/total-us-debt-across-all-se… https://democracyjournal.org/magazine/42/the-private-debt-crisis/ tells us we are referencing debt.

The only thing that is in our interest, is the ability to live (physically) well and long. At this point, referencing the debt-issued tokens of a crumbling Empire, well, do you drink tea?

by Audaxes | 11th Jun 20, 9:55am 1591826139

How many didn't get the memo recently?

...consumers will accelerate repayment of existing debt balances as their expectations of the future sour. Link

by Battinz | 11th Jun 20, 11:00am 1591830002

Apart from Trump being a personally unlikable fellow, his administration established an eye-watering deficit *before* the disaster struck.

I don't see why beneficence for NZ comes into it.

by Mike1 | 11th Jun 20, 11:47am 1591832862

Roger it is weird that people writing for a financial news source don't understand the basic mechanics of the world financial system. A writer here called the US "Argentina" a few days ago and now we get "banana republic". I'm not sure why this is complicated if finance is your thing. Without USDs being created the world system fails. You don't have to think its a great way to run things but you really should understand it if you don't want to look silly.

by The Lark | 11th Jun 20, 1:31pm 1591839075

I think the point is that the system has failed, and it's not just "printing some usd's", the volume they are printing is unprecedented, unsustainable and unbelievable. Fiat currencies have a life cycle, and people that don't understand that should read up on it.
The "system " is completely distorted, and the currency and the stock markets are just the financial tip of the iceberg.
The derivatives market is somewhere in the $1.5QUADRILLION. Check out "naked short selling", an incredible abuse of shareholder trust by brokers, selling shares many times over. The only way out is to run companies to bankruptcy.
European banks are starting to use USDC, a crypto stable coin, to make cross border settlements, the digital yuan is already being used in 4 Chinese cities, and the use of the usd a reserve is at 60% and decreasing. The point being that things are changing fast.

by Andrewj | 11th Jun 20, 9:06am 1591823214

Trying to get back into cattle but the US market looks a bit of a mess, I don't know how it affects our market now we have so much product going to China.

"The growing backlog of market-ready fed cattle has become more apparent and worrisome this week. It simply isn’t possible to accommodate all cattle offered for sale and buyers seem to be focusing on the cattle most needing to go. Lots of cattle have been standing 30 days past their out-date, some 45 days.
There is a sense today that the industry is collectively bracing for what downside is to come and the unknown magnitude and duration of the decline."
This week’s estimated slaughter if 650k to 656k head, the largest since March, closing in on year ago levels of 669k- so progress continues to made there.
Once the price and production levels are near a year ago, then then the market can begin to digest what the unprecedented number of backlogged fed cattle mean to the market from a price standpoint. The other key point is how low do boxed beef values go in order to buy back demand. The market has never dealt with a situation remotely similar to the one it finds itself in, therefore guesswork is the name of the game.
What is known is total Q3 protein production in the U.S. will be huge. End users will be able to acquire ample supplies of anything desired at dramatically cheaper prices than Q2. Competition between proteins will increase as all vie for the consumer’s basket."

This is a meat processing world where Mergers have created monsters. JBS as an example kills 13 million animals a day. That's every single day.

https://www.thebureauinvestigates.com/stories/2019-07-02/jbs-brazilian-…

Thinking I need to buy the cheapest cattle I can get, which is probably weaner bulls. The problem is, they go into the USA grinding market aand it's going to be full of product.

by Andrewj | 11th Jun 20, 9:33am 1591824804

It's easy to forget that we have a very high cost structure compared to our competition, even in the UK farm diesel for instance is below 40p a liter today . Our costs are up with the very best. South American producers have seen currencies collapse over %40 while NZ $ is up %20. I worry what will happen to us as the competition heats up, expensive land, high costs, relentless inflation from non tradable sector, Council consents, new taxes, droughts, every month farms pay bills at often double what our competitors pay for like.

by Becnz | 11th Jun 20, 9:38am 1591825083

RBNZ must be desperate to get our dollar back in the 50cent range but will take doing as USA are going crazy trying the same game.

by Henry_Tull | 11th Jun 20, 11:15am 1591830940

Yep, that has always been the go to...
Look away at productivity, domestic policies, pull it right by dropping the dollar.

Now when that doesn't happen, it's the blind leading the blind.

by frazz | 11th Jun 20, 9:51am 1591825885

You really are stuck on raising live stock..its that your only option?

by Andrewj | 11th Jun 20, 10:00am 1591826411

Clay hill country has it's limits, I am trying to get into seed production, my climate is challenging with frosts. I have a vineyard I don't talk about much, it's been a painful experience.
Sheep and beef on my hills or trees are about my options, my farm is deer fenced I'm not running deer till my trees are bigger, deer give trees hell.

by frazz | 11th Jun 20, 10:18am 1591827533

Sounds like a hard and stress fell endevour..good luck with the oats (the milk is going gangbusters)

by Andrewj | 11th Jun 20, 10:22am 1591827728

Oats are a success, 7" high and going for it. I looked at some farmers in Sweden who where growing oats just for milk production, although it's not really milk is it. They were onto a good thing with the growth in alternative milk products.

by youngdumbandbroke | 11th Jun 20, 10:29am 1591828161

I've never seen oat milk on the shelf, is it in the supermarkets or am I blind? Wouldn't mind giving it a crack

by YoungTel | 11th Jun 20, 1:08pm 1591837739

I've often seen oat milk in supermarkets among the soy, almond and rice milks

by Casual Observer | 11th Jun 20, 10:17pm 1591870620

Check out otisoatmilk.co.nz for NZ oat milk

by frazz | 11th Jun 20, 10:41am 1591828906

"although it's not really milk is it" - sorry lets call it plant milk - and lets call cows milk dairy milk, and human milk Breast Milk.
Those who think milk is only from cows are barking up the wrong tree.

by Pragmatist | 11th Jun 20, 7:18pm 1591859937

Milk is only from lactating animals, including humans.

the rest are nut juice, or cereal juice, not milk

by Matt73 | 11th Jun 20, 10:56am 1591829809

I enjoy reading your posts Andrew, they offer an interesting insight into the agricultural economy that as a Jaffa I don't really have exposure to.

Regarding oat milk, it's become the staple for me and mine, most of the people in our circle of friends drink plant milk and this wasn't the case a few years ago. No one is vegan and only a couple of vegetarians. Flexitarian is now the norm. I have struggled to find NZ sourced product though, our current brand has oats from Australia. An opportunity perhaps? Best of luck

by Andrewj | 11th Jun 20, 11:24am 1591831494

Thanks for the feedback. You can make your own oat milk, i'd use organic steel cut oats, cheap , my daughter does, it's easy and cheap. Just don't touch Rice milk and Soy does strange things to chickens.

https://www.notsoancientchinesecrets.com/how-to-make-oat-milk-from-stee…

I was talking to my nephew who wants to farm and he was telling me how many of his friend no longer eat meat, a worrying trend for farmers.

The wool industry needs a column of its own.

From PGG

'Mackay said the wool market was in real trouble as it was down 25 per cent from where it was in late February and early March. Two recent auctions saw full length crossbred fleece least affected and strong lamb's wool suffering the most, taking a 35-40 per cent hit.

New Zealand was not alone, as Australian wool prices had also taken a hit and fine wool prices had halved since September 2019, said Mackay.

For some historic perspective Mackay spoke of 1968 where he would get NZD $5 at auction for strong wool, and that same wool today was estimated to get NZD $1.70 a kilo.'

by Andrewj | 11th Jun 20, 11:30am 1591831826

you may enjoy this, it's what we can do in NZ with hardwood farm forestry in 30 years.

https://www.youtube.com/watch?v=dbkN_EAfmwI&t=211s

by Ahuhyeah | 11th Jun 20, 1:04pm 1591837492

I think I'd prefer the label to be plant juice, and animals have milk. But then there is milk of the poppy....

Ahh whatever sells better....

by Casual Observer | 11th Jun 20, 10:15pm 1591870552

NZ oat milk https://otisoatmilk.co.nz/ The best oats in the world, nutritionally, are from Southland NZ. Something to do with them having the highest levels of beta glucan, is what I understand. (And no we are not oat growers other than occasionnally as a mixed pasture species for winter grazing stock food :-) )
https://www.stuff.co.nz/business/farming/118983026/oat-milk-company-pla…
https://greatsouth.nz/projects/southland-oats-nz-functional-foods

by Mike1 | 11th Jun 20, 11:51am 1591833079

Where are you AndrewJ? I have been analyzing the beef market a lot in NZ the last few weeks it would be really helpful to talk directly to a producer. Let me know if this is something you are interested in.

by Andrewj | 11th Jun 20, 12:19pm 1591834748

Im keen, in central hawkes bay, you will have to ask David for my email. Friends in USA re talking of 3-400$ losses on cattle and this article confirms that.
https://www.aberdeennews.com/farm_forum/cattle-feeders-up-against-a-wal…

When I was in California cows with calves at food were selling for $2800, they dropped to $1000 and our schedule here hardly moved. The works here must have done well out of the grinding market for the past few months.

I had agents trying to talk me into heifers before Christmas at $1150 a head,man I would have taken a hiding, some R2 bulls made 2k in the store. People have talked of $300-500 losses on cattle. I suspect lots of farmers are bruised and battered but things look good because capital stock has been sold. I have friends sitting on cattle they won't sell because they are worth less than they paid for them.
I'm getting really nervous about where we are going with the meat market.

by Mike1 | 11th Jun 20, 1:06pm 1591837575

Comment self deleted

by Casual Observer | 11th Jun 20, 10:53pm 1591872833

Spoke to a sharemilker recently still had around 60-70% of his culls on hand - large herd. He got sick of waiting for space at the works that was always implied to be 'next week' but next week never came. Sold them privately in the end. Said he probably lost around $40/hd on works
price, but when factoring in the costs of feeding them etc he was better off.

by Andrewj | 11th Jun 20, 9:06am 1591823162

"According to Mexico’s Instituto Nacional de Estadística y Geografía (INEGI), the production of light automobiles rebounded in May 2020. Up more than 494% from April, the country managed to piece together 22 thousand units last month. And that was still 93.7% fewer than had been assembled during May 2019.

Auto production had been down almost 99%, so the rebound to -93.7% seems especially large particularly when you focus in on the short run rate of change. Near 500% sounds like an awesome turnaround, a sign of maybe something big, if that’s all you know."

https://alhambrapartners.com/2020/06/09/entering-the-window-of-gigantic…

by Becnz | 11th Jun 20, 9:35am 1591824959

I am starting to think the sharemarkets will get a second hit in the back half of this year as they seem to have inflated again with cheap money but earnings may soon bring them back down again once people start to look hard at the future growth rates.
Wait and see but upside from here looks small.

by Logicthinker | 11th Jun 20, 9:49am 1591825780

Lets stop the bus. This pandemic was generated and spread throughout the globe by China and their residents. They have enough financial reserves to float the world out of this financial mess. Politicians around the globe should stand up and say we will not trade with China until financial compensation has been established. Australia should stop supply of Iron Ore immediately. The time to end China's rhetoric is over.

by Independent_Observer | 11th Jun 20, 10:56am 1591829776

Do you think a war with China will improve our position?

by Audaxes | 11th Jun 20, 12:36pm 1591835788

Cold war plans are well developed and seem to be expanding - let's hope they don't evolve to a hot phase.

by Boatman | 11th Jun 20, 1:40pm 1591839628

Just sit tight , we are going into a deep delfationary cycle , its already in play , and its going to get a whole lot worse .

Prices and wages will fall .........and jobs that may have paid over the minimum wage , are likely to settle at or just above the minimum wage .

by Kezza R | 11th Jun 20, 11:47pm 1591876075

The Fed and CB's can not and will not have deflation.
BURRRRR go the printers. They will send the choppers out daily if that is what it takes.