Hard commodity prices rise; China wants to join the TPP; Trump officials sabotage US economic protections; Argentina progresses a wealth tax; UST 10y at 0.82%; oil firm but gold unchanged; NZ$1 = 69.3 USc; TWI-5 = 72

Hard commodity prices rise; China wants to join the TPP; Trump officials sabotage US economic protections; Argentina progresses a wealth tax; UST 10y at 0.82%; oil firm but gold unchanged; NZ$1 = 69.3 USc; TWI-5 = 72

Here's our summary of key economic events overnight that affect New Zealand, with news commodity prices are on the rise again.

In China, iron ore and coking coal prices are on the move higher as economic activity moves back to boom conditions. Copper has risen to more than a two year high; aluminium is up to near an 18 year high. The recent softness in shipping costs looks like it is turning back up again.

And China's internal freight volumes rose +7.2% year-on-year to October, up significantly on the +5.6% rise in September.

The Chinese leader has apparently said they are open to joining the TPP. It would be a real humiliation for the Americans if that should happen. The TPP was their construct to try to block expanding Chinese influence. But Trump's ill-advised exit has opened this door.

But there are other things to worry about coming from China. They are apparently pushing to have their domestic law apply internationally. 习近平法治思想. The idea is to promote "the rule of law" - in so far as it furthers Chinese aims and controls. (This claim is disputed and depends on translations of a small part of Xi's speech.)

Just over half of American companies are more optimistic about doing business in China on expectations of better trade relations with the US under a Biden administration.

In the US, officials who are about to lose their positions after the election result are sabotaging the US Federal Government programs ahead of the handover. The Treasury Secretary is canceling pandemic support programs (to the horror of the Fed), regulators are suddenly ending Federal oversight protections, and there is a push to sell off public resources in protected areas. It is getting very unseemly, childish and very third-worldish. And the upshot is that millions of Americans are going to face a harder winter economically, already severely stressed by the pandemic.

Over the northern border however, Canadian retail sales for October came in surprisingly strong, up +4.6% year-on-year and well above the September +3.7% gain. It was the fifth consecutive monthly increase since the record decline in April and the best rise so far.

Japan's deflation rate worsened in October, now running at -0.4% and is a very disappointing result. And their factory PMI for November doesn't actually inspire any confidence they are moving in the right direction.

But Taiwan does seem to be making progress, especially with its exports. Export orders by Taiwanese companies were up +9.1% in October, continuing a strong run that started in June.

In India, bank loan growth is picking up in a sign they may have turned a corner from their pandemic funk.

But in Europe, consumer sentiment, which was already quite negative, has gotten much worse in November. They are not heading for a happy festive season.

In Argentina, a "one-off" wealth tax is progressing through their Parliament and will get a final vote at the end of this week. The tax would be levied at progressive rates of 2.0% to 3.5% on assets held in Argentina and at rates of 3.0% to 5.25% for assets held abroad by Argentine residents. It is not a tax on companies. Most of the tax will hit Argentine residents with offshore (dollarised) assets. And because their currency is volatile, it could affect between 10,000 and 30,000 people. Tax compliance in Argentina is very low so estimates of revenue collected may be optimistic.

Back in New York, the S&P500 futures are signaling that Wall Street may open almost -1% lower. The pandemic surge is now reaching epic proportions in North America and Europe, not to mention South America.

The latest global compilation of COVID-19 data is here. The global tally is 58,344,000 and a +1,139,000 rise from Saturday. It is still very grim in France, Russia, the UK, Spain and central and southern Italy with even greater stress on their hospital systems. It is even worse in Belgium where they are doing wartime triaging. And although tiny by comparison with others, both Japan and South Korea are on edge as their clusters grow again. Global deaths reported now exceed 1,384,000 and up +18,000 from Saturday.

The largest number of reported cases globally are still in the US, which rose +346,000 since this time Saturday to 12,471,000 which embedding the higher pace of infection. The US remains the global epicenter of the virus with its leadership in denial and resisting any proper response. The number of active cases is surging at 4,804,000 and that level is up +194,000 in two days, so many more new cases more than recoveries. Hospitalisations are up very sharply especially in the Mid-West. Their death total now exceeds 262,000 and now rising by almost +2000 a day. The US now has a COVID death rate that now matches Brazil of 790/mln. The Center for Disease Control urged Americans not to travel home for their Thanksgiving holiday, in an attempt to head off what promises to a nationwide superspreader event akin to the Memorial Day and Labor Day weekends earlier in the year. The call seems to be falling on deaf ears.

In Australia, they are not getting any major resurgence. There have now been 27,821 COVID-19 cases reported, and that is +32 more cases over the weekend, mostly in NSW. Now 90 of their cases are 'active' (-3). Reported deaths remain unchanged at 907.

The UST 10yr yield will start today down -1 bp at 0.82%. Their 2-10 rate curve is a little flatter at +66 bps, their 1-5 curve is unchanged at +27 bps, with their 3m-10 year curve also flatter +75 bps. The Australian Govt 10 year yield is unchanged at 0.87%. The China Govt 10 year yield is also unchanged at 3.35%. And the New Zealand Govt 10 year yield completes the stability picture at 0.81%.

The price of gold is unchanged today at US$1870/oz.

Oil prices are slightly higher to start the week, up +US$0.50 to just under US$42.50/bbl in the US, while the international price is now just on US$45/bbl.

And the Kiwi dollar is holding at 69.3 USc. Against the Australian dollar we have stayed firm at 94.9 AUc. Against the euro we have moved down slightly to 58.4 euro cents. That means our TWI-5 will start this week at 72.

The bitcoin price has settled at a high level, now at US$18,486. And just a reminder; it's record high was US$19,343 in December 2017. 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 ».

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53 Comments

A friend of mine has won the first ever rehearing at the Privy Council. The backbone of his case is that of Fiduciary Duty ignored by the Bank, but also by the courts and government. He lost an estimated $10m in 1990 because of the skullduggery by the Bank. I see wider implications of this sort of behaviour, ignoring principles and duty, and I made this comment on a facebook post of his. It was well received.

“Fiduciary duty falls under deontological philosophy. The opposing theory in philosophical ethics is consequentialism. With a principle that demands a deontological approach the consequentialism is already built in, if you try to add further consequentialist action then the principle loses its value, it can no longer operate for the greater good of all.

Power vested by institutions should always be exercised in a deontological manner. The architects of that institutions design it to be this way, those within it should not change it.

Principles can't be such if they are able to be manipulated and diluted by the flavour of the day. All sorts of amateur hacks are having a go at it, social media is full of it.

The problem we are facing is inconsistency in thinking. The deontological approach is designed to eliminate this inconsistency, hence the importance of adherence to principles no matter what.
Principles you know things like the presumption of innocence, equal rights of difference races/cultures, freedom of movement, freedom of assembly, freedom of speech, the right to refuse medical intervention.”

I would further add that I doubt there is any legal basis for an institution, including the courts, to over ride deontologically set duty. That isn’t in their mandate.

I wonder if Tiwai point will be able to extract taxpayer dough from the government with aluminium prices at the highest level in nearly two decades?

Certainly the Ali prices are good news for them but it's a cyclic industry. Incidentally, Tiwai was not offered any taxpayer dough.

So much misconception floating around what NZAS costs and benefits to NZ's economy.
South Otago and Southland-based engineering firms generate upwards of $58m in annual revenue selling engineering productions and technical solutions to the smelter, which itself is more than the $48m in power subsidies. The smelter also procured goods and services worth $422m from the rest of the country in 2019.
The smelter hires nearly 1000 workers and contractors plus 16 apprentices, paying an average $91k salary in salaries and wages a year (72% higher than NZ's average).

Including other smaller contributions, keeping the smelter running generates around $600m in high-value economic activity. That's $12 for every dollar spent on subsidies.

Meanwhile Rio Tinto made a profit of US$8.01 Billion last year.

Remind me again why we subsidise them?

Oh that's right, becuase in 2018 they made a profit of US$13.64 Billion right...

Amazon's founder & CEO has a net worth roughly as much as our entire GDP. That didn't stop us from subsidising his streaming company from claiming TV grants for over NZ$300m for filming the LOTR series in NZ. That's 20-25% of what its producers will spend in NZ, eclipsing the RT subsidy by a lot.

If not for this deal, another filming destination elsewhere would've attracted the producers of the show with a better offer. Most TV viewers are as indifferent about filming locations as Bezos is about the welfare of his delivery centre staff.

Unless you've lived under a rock for a while, let me tell you that this how business is done in today's world.

So if everyone speeds on the motorway it's gotta be right?

You just explained exactly what is wrong with big corporates and govts, not sure if you realised that. Well done though.

Also wondering if you have that nice condescending tone to your clients?

You seem to have gotten a bit off track muzzled. The benefits of retaining NZAS are clear. The arguments over taxpayer subsidies are quite murky given MEL and CEN are partially privately owned. To be fully informed you need to read up on the history surrounding the smelter - it's not pretty. Any fair minded person could easily argue the smelter got stiffed

Nope, not off track at all Hook.

I don't think anyone is doubting keeping the smelter open has benefits.

What I'm saying is any company making a profit of 8 billion dollars doesn't need a govt subsidy to keep operating.

15
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Well it's still raining on the farm, everyone has too much grass, I am out on the tractor topping some of the worst offenders. The cattle market is confusing, I suspect a lot of fear around Covid in Nth hemisphere putting a damper on confidence.
I am putting bulls into the sale yards as they did a little too well and got a bit heavy for buyers. I have other friends trying to buy and finding it very hard to find cattle, with all the confusion I decided to let the market decide what my cattle are worth. Hoping for over 1k each, I paid $500 a head after the drought which was what they were worth as calves, Stock agent tells me banks are not extending credit for farmers, many are too scared to even ask, fools should have sold up and gone into housing they would all be quazzilionaires by now.
I other news our rates are out of control, I have a cousin with 1000 hectares maybe a little less but anyway he was complaining about his rates bill at 98k pa . If he is making $300 out of a steer or bull after running costs he needs to have 300 cattle to pay his rates if rates keep increasing at 5-8% a year compounded, you can see that in a few years he will be working for the council.
Another friend has 600 hectares and pays 60k a year in rates of income from 200 cattle or 100 hectares, these huge rate bills are no longer unusual in the farming community, it's becoming the hobby of the very rich

My wife's parents are stuff in the UK, they employed a gardener are are working in the garden, I suppose in late 80's and early 90's working in the garden is better than working under it like happens to most of us.

I am doing Aldi hampers for UK friends and family, they do a great hamper at a good price. In other UK news men from the middle East have been caught selling fake negative Covid tests, if they had any brains they would sell false positives so you got two weeks off work.

Did anyone else get an invitation to the 'Bloomberg New economy Forum' I was too busy to go, the elites are going to save all our problems apparently, only problem I have is that in the past this usually led to them all getting killed, often very slowly.

https://www.neweconomyforum.com/2020-new-economy-forum/

don't miss Mauldin's latest.
https://ggc-mauldin-images.s3.amazonaws.com/uploads/pdf/TFTF_Nov_20_2020...

Always enjoy your farm updates Andrew. Hoping for Auckland's sake we see a more normal summer with the odd tropical downpour here and there to level off the dams, rather than extreme heat or prolonged rainy spells.

Is there are time when Farmers are content and happy and nature is providing everything perfectly and they have nothing to grumble about?

haha.. short answer - NO. Mainly because Nature never provides perfectly.

Classic - debatable - Human impact on the natural environment has reached unprecedented levels. Humans are present on all continents; almost all ecosystems have been modified by human activities through habitat loss and fragmentation, overexploitation, pollution, and invasive species. Tough job to balance these changes.

Actually we are just like everybody else, good times and bad times, just don't forget to live.

those rates bills are eye watering - well worth moaning about - the roads must be paved in marble

Stock agent tells me banks are not extending credit for farmers, many are too scared to even ask, fools should have sold up and gone into housing they would all be quazzilionaires by now.
Hmmmm...
The Soaring Value Of Intangible Assets In The S&P 500
The future?
China Leapfrogs US With World's First 6G Satellite Amid Raging Tech War

I say leave the plumbing and dirt to the debt serfs and their enablers. Building societies masquerading as banks deserve little else.

Hi Andrew, why don't you kill the bulls? Around $5 CW at the moment.

they are only rising 18mth and at 400 kgs live weight would kill out lighter, need another six months of fattening, I have shoe horned them on this year so about 80- head over my comfortable summer stocking rate. I am keeping the heaviest of them but even the light ones are putting on at least 1.5 kgs a week at present. I gave them a drench for Cooperia and it really cleaned them up and got them moving. If we get temerate weaather I always drench for cooperia
https://en.wikipedia.org/wiki/Cooperia_(nematode)

12
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AJ...
Im reading a couple of interesting books... The Dying of money by Jens O Parssons 1974 and "Understanding Money Unemployment and Inflation, Why NZ is a Modern Utopia" by John Randolph Perkins. (Perkins was a NZ Farmer and wrote this book in 1964.)
The 2 books are largely about inflation and the inequality and concentration of wealth that results from excessive Monetary inflation.
John Perkins also talks alot about Property , in the context of land as a natural resource. ( Once a country gets populated enuf that land becomes scarce)
He talks about NZ having laws that limited land aggregation.
H believed there was a tipping point of wealth inequality , ...and describes the problems and issues that end in some kind of "reset", which could involve social unrest or war.
He was an advocate of all the taxes nZ had in the 1960s..... eg inheritence tax.
He believed in an "honest" monetary system that was stable ( fixed quantity), and which might only grow by small amounts for full employment aims.
He said money should mainly, simply be a medium of exchange.
He argued against the financialization and monetization of everything...

Reason I'm saying all this..... is because what u say about you mates with huge rate bills .. This is the destruction of the middleclass of NZ....Zombie farmers who struggle to pay rates let alone repay debt. Rates that are not justified by the underlying income of the farm but simply on the Monetised, inflationary values.. These values stem purely from the unfettered growth and mismanagement of our Monetary System

If the Argentine proposed wealth tax is anything to go by...... things will get alot worse here..

Wealth begets power...which influences/controls politics...which determines the economic policies/outcomes ( ideas of the moment that suit the elite ). Economics really is a dismal science..

Relying on immigration and credit growth to grow NZ GDP ( john key era...which labour continues with ), has been an incredibly destructive thing to do. ... in my view
We have come a long way from John Perkins view of NZ utopia in the early 1960s ... I think he would be dumbfounded to see NZ now.

hell, I'm dumbfounded to see NZ now.
My eldest daughter will probably take over this farm , her husband is a doctor and this farm would ba a hobby for them. Did you ever read 'Farmers are bananas' by Rusty Firth?

If they bring a land tax in will we still be freehold, or just leasehold?

I remember my father trying to buy some more land but the aggregation laws stopped him, today less and less farmers are buying more and more, several around here have purchased up to and some over 40 properties in the last decade or so.

Over 40 properties .....
Is that 40 farms or 40 houses in non-rural areas

no thats forty farms, things have really changed, the new super huge farmer. It's sounds crazy but banks have leant and leant to the same people till they have become huge, same as in dairy.
Data corp is one that has massive rural holdings all over new Zealand.

Who is this Data Corp - Can't find them

http://www.horizonfarming.co.nz/

could be data com, Wellington outfit works in IT with NZ Govt etc.

Also invested in Cromwell Cherries and other rural ventures.

The author described seems to make a lot of sense, as do a lot of those writing pre 1970 , long ignored.

Australian virus
Every day you say no resurgence
You don’t say how many of cases are community v isolation
If NZ had 32 cases or 7 in community then people would be worried

Japan's deflation rate worsened in October, now running at -0.4% and is a very disappointing result. And their factory PMI for November doesn't actually inspire any confidence they are moving in the right direction.

If Japan’s economy is sinking further, certainly seems to be, this acknowledges the second wave of deflationary dollar disease running rampant throughout the global economy. For all those still somehow thinking the response to it was ever going to be hugely inflationary, the Bank of Japan is about to exceed three-quarters of a quadrillion yen in assets with absolutely no sign of inflation, growth, or anything other than financial media credibility.

QE doesn’t work. It never has. These programs are not money printing because all they lead to is bank reserves while bank reserves are not a useful form of money. They are instead, in a word, accounting. The logic is as simple as it is unassailable. Link

The Yen is breathtakingly stubborn. It just doesn't move and hasn't for the last decade. One of my hobbies was bringing in interesting cars from Japan but because of the asset bubbles, the Japanese market is being plundered by European classic car brokers and the costs of everything has gone up. Gone are the days of 90 yen to the Kiwi Dollar, sadly, even 120 was normal at one stage. Now buying at 70:1 makes it too hard and costly, and there are a lot of cowboys and people who don't have to work hard for the money in the game too.

I read an interesting book .."Japans policy trap" https://www.amazon.com/Japans-Policy-Trap-Deflation-Japanese-ebook/dp/B0...

Made me realize that Japan and China are not too dissimilar .. ie. China is kinda following Japans foot steps.in regards to economic development , since ww2

Big thing I realized from reading the book is that it is a mistake to analyze Japan and china thru the "lens" of western economic/political glasses.
The power in Japan is hidden within its Ministries....its' bureaucracies.. ( I'd be surprised if a 2% inflation target is even important to them ).
I think alot of savy investors have been burnt by betting against Japan and China, expecting things to unfold , which would in "normal" Capitalistic systems..

When u say QE does not work in Japan... how would you know..?? Its real purpose , in Japan, might have been to enrich the bankrupt banking system..??

Bank reserves are a useful form of money.... Any bank can spend them by simply by .. "writing a ( proverbial) chq, against them ".

Bank reserves are a useful form of money.... Any bank can spend them by simply by .. "writing a ( proverbial) chq, against them ".

Only BoJ authorised clearing banks can cash such a cheque.

The Reserve Bank's purchases of government bonds have created deposits
As part of the package of monetary policy measures announced in mid March, the Reserve Bank began to purchase government debt from the private sector, to support the three-year yield target and address market dysfunction. Around $50 billion of government bonds were bought from March to early May, and around $1 billion in early August. These bonds were purchased by the Reserve Bank from a panel of commercial banks via auction, and were paid for with newly created money credited into banks' Exchange Settlement Accounts (these balances do not count as deposits, as they are not held with the private banking sector). Some of these bonds sold by commercial banks would have been purchased from non-bank investors, generating a flow of funds into non-bank investors' deposit accounts.[5]

[5] In the case where the Reserve Bank buys bonds that were not on-sold to banks from non-bank investors, no new deposits are created.Link

After more than half a decade of disastrous monetary policy which not only failed to stimulate inflation, boost exports or crush the yen, but has brought Japan's banks to near disaster, the Bank of Japan has come up with an "ingenious" new plan to flood the system with liquidity: it is paying banks hundreds of millions of dollars in bonuses to boost lending, a move analysts say is aimed at easing the side-effects of its negative interest rate policy.Link

BOj authorised clearing banks have accts with the central bank , thus they are the ones that hold reserves..? The point is,... they can spend those reserves.
( The same way, back in the day, a bank that held gold as reserves with the FED could have spent those reserves by transacting in credit ( writing a chq), which would get settled thru the payment/clearing system as a transfer in reserves . )

Those reserves are as "good as gold".. I don't understand why Snider does not view reserves as money.? Alot of what he writes does not make sense to me.

In my view...
What brought Japanese Banks to close disaster was the Ministry of Finance ( MOF ) mandate that forced Japanese Banks to do imprudent lending ( by western standards ), going into the 1989 bubble top.... It beggars belief... Banks have struggled to heal balance sheets ever since.

Japan has a corrupt, elitist kinda pseudo dictatorship style of "democracy"... ( according to this book. )...which is not to say it treats its people badly.
Its a system that seems to work for them..... just...... zombi economy is an apt word.
They have never been able to properly recover from the bubble yrs ... The powers that be, are more interested in maintaining the status quo.... the order of things.
The Banking system is an arm/tool of the MOF and the power structure.. They are not really as free and "private sector", like our Banks are.
ie.. they dont exist to maximise profits...etc

RE:QE "The bonds sit on the RBNZ balance sheet until either, 1. They mature, or 2. They are on sold."

Equally, the banks' claims on reserves against those sold bonds have to remain on the RBNZ balance sheet as well.

In case the latest John Mauldin letter doesn't get published, here is the link:

https://www.mauldineconomics.com/frontlinethoughts/the-great-reset-vs.-t...

The World Economic Forum’s plan for the future is simply horrifying especially if you have large personal debts that you can’t repay. The first part of the video that they have since taken down says ... “you will own nothing but you will be happy!” Really!!

"Trust us to deliver a system where you lease everything and prices totally won't explode to the point where you can't afford to live, but please ignore our track record of destroying real wealth through unaccountable and unelected institutions like central banks".

Pass.

Unfortunately lately the media label anyone who talks about the big reset as "conspiracy theorists". It seems to be the media and Govts way of shutting down dissenting opinion on any topic.

Were the people who predicted the '87 sharemarket crash or the GFC merely conspiracy theorists?

Oh but that’s the share market - nobody invests in the share market because it crashed in ‘87. No no no, houses, you need to buy many houses and be manic about it...(god we are idiots)

Haha.. the '87 crash and GFC were "Black Swan" events - no one predicted them, that's why they were so damaging.

'We’re on a slope where monetary policy has become increasingly ineffective in promoting real economic growth. Every crisis was met with monetary easing that caused debt and other imbalances to accumulate over time, and that caused the next crisis to be bigger than the previous one. The next crisis then needed more punch from central banks. But since interest rates were never raised as much in upturns as they were lowered in downturns, the capacity to deliver that punch was decreasing.

[The recent March, 2020] episode perfectly encapsulates my view of what’s wrong with our monetary policy of the past decades. True, the Fed had no choice but to step in to prevent a financial meltdown. But this meltdown only happened because of the monetary policy followed over previous years.

… my point is: Central banks create the instabilities, then they have to save the system during the crisis, and by that they create even more instabilities. They keep shooting themselves in the foot'

Pretty much sums up my views on the current central bank methodology. They're destroying the same system they're trying to protect. If an individual did that, you'd send them to the psychiatric ward.

Makes you wonder whether monetary policy ever was effective, or if it's just confirmation bias.

If you see Dalio’s work on long term debt cycles then yes you could consider it a form of confirmation bias - that’s because it works well until a point when it devalues fiat currency and destroys itself. But you need to look big picture and long term to see what is happening - and ignore mantras like ‘property doubles in price every 10 years’

17
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China will 'poke our eyes' if we don't behave. Lovely.
We and the West need to decouple from these bullies.

Hi Fritz

yes indeed. See Trotter sucking up suggestion today!
People (or not enough) seem to be leaving it awfully late waking up to what we have become dependent on

I see AKL council are hiking rate apparently due to covid costs, no mention of the 2.4 billion dollar swap loss.

https://www.nzherald.co.nz/nz/auckland-council-looks-set-to-hike-rates-a...

Our rates went up about $300 this year I think, which in the big picture is very little to complain about really.

Be nice if they stopped paying Deloitte contractors $3000+ a day though, that kinda pisses me off.

million dollar spreadsheets.

That's the problems with government in general, they are just an inefficiency that increase regulations and costs. As they don't have to make a profit on the free market they don't care about finding the best/cheapest deals. they don't care where the money comes from, they just pay what ever a business wants to charge. And this further drives up prices for the private sector as they have to compete with govt level of costs.

Just be thankful you are not in Wellington. There is talk of a 25% rates rise needed.

"2.4 billion dollar swap loss."

Paying the same interest rates you budgeted to pay, doesn't require any rate hikes.

Of course paying lower rates would be less rates needed. But likewise high interest rates would mean higher rates needed.

they had to borrow 2.4 billion to meet collateral call from banks.

since when does debt from banks serve as collateral?

It's about time NZ start to lift it's game to support it's third largest ethnicity (Asians), soon the larger countries like China, India, Indonesia, Brazil for example will take notice how NZ internally abandon this third largest ethnicity, NZ focus solely right now for uplifting second largest ethnicity (Maori) & Fourth (Pasifika). But we know at best which majority ethnicity that govt & RBNZ are solely focus on keeping up the housing subsidy for now.