US Fed's surplus grows; US expects more inflation; China gets less inflation; Aussie retail sales jump; equities slip; UST 10yr at 1.14%; oil and gold unchanged; NZ$1 = 71.8 USc; TWI-5 = 73.2

US Fed's surplus grows; US expects more inflation; China gets less inflation; Aussie retail sales jump; equities slip; UST 10yr at 1.14%; oil and gold unchanged; NZ$1 = 71.8 USc; TWI-5 = 73.2

Here's our summary of key economic events overnight that affect New Zealand, with news one corner of the asset price bubble is getting very unstable - bitcoin.

But first, in 2020 the US Fed generated a much larger surplus on its monetary operations as interest rates skidded towards zero. In 2019 it sent a US$55 bln surplus to the US Treasury, but in 2020 it sent an $88 bln surplus.

American consumer expectations for future inflation are rising, even if the rise isn't sharp. +3% seems to be what American expect in both the medium and longer term. (Actual current CPI is +1.2%.) They expect house price inflation to rise slightly faster at +3.6%.

In China, consumer inflation has evaporated. CPI prices rose just +0.2% from a year ago in December, but at least this bounced back out of deflation territory where it was in November. The only item that still shows rising prices is red meat, with both beef and lamb prices up +4.6% over the past year. Even pork prices are declining (-1.3%pa).

However deflation for producer prices is still with them even though it is easing quicker now.

Data for November retail sales in Australia shows a strong recovery, driven by the re-opening of Victoria. But the pandemic twists makes this a highly distorted picture, even if it is quite positive. It is also marginally above expectations.

Wall Street has started the week lower by -0.2% in early afternoon trade. Overnight European markets were lower by about -0.8% although London fell more than -1%. Yesterday, Shanghai fell -1.1% while Hong Kong rose +0.1%. Tokyo was closed for a public holiday. The ASX200 ended its session down -0.9%, while the NZX50 Capital Index slumped almost -2% as the electricity gentailers took a serious bath from profit-taking.

The latest global compilation of COVID-19 data is here. The global tally is rising faster, now at 90,436,000 and up +544,000 in one day. We are heading for 100 mln within two weeks mainly because the UK variant is taking off worldwide now. It is still very grim everywhere except in our region. Global deaths reported now exceed 1,938,000 and +7000 since this time yesterday as death rates rise everywhere.

But the largest number of reported cases globally are still in the US, which rose +201,000 on their Sunday for their tally to reach 22,936,000. The US remains the global epicenter of the virus. The number of active cases rose overnight and is now at 9,067,000 and that level is up +110,000 in just one day, so more new cases than recoveries again by a substantial margin. Their death total is up to 383,000 however (+1000) and the count is delayed today because it is Sunday. The US now has a COVID death rate of 1155/mln, sadly comparing with the disastrous UK level (1196).

In Australia, their Sydney-based community resurgence is back under control although officials are on high alert over the risks from the UK variant which is starting to show up in the community. That takes their all-time cases reported to 28,595, and +19 more cases yesterday with most in managed isolation. But 312 of these cases are 'active' (-2). Reported deaths are unchanged at 909.

The UST 10yr yield will start today up another +2 bps at just over 1.14%. Their 2-10 rate curve is still at +99 bps, their 1-5 curve is also still at +39 bps, and their 3m-10 year curve is holding too at +103 bps. The Australian Govt 10 year yield is little-changed at 1.09%. The China Govt 10 year yield is lower however, down -4 bps at 3.18%, while the New Zealand Govt 10 year yield is unchanged at 1.07%.

The price of gold is unchanged in New York at US$1850/oz.

Oil prices are slightly softer today at just on US$52/bbl in the US, while the international price is at just over US$55.50/bbl. Rig counts are rising faster now.

And the Kiwi dollar is down more than -½c at 71.8 USc today. Against the Australian dollar we are softish at 93.1 AUc. Against the euro we are lower at 59 euro cents. That means our TWI-5 is now at 73.2.

The bitcoin price has crashed today, now at US$30,467 today, and very volatile. It had now fallen -US$8902 from this time yesterday, a -23% drop in just one day. But it continues to jump around wildly. The bitcoin rate is charted in the exchange rate set below.

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94 Comments

33
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CV19 variant(s.) Long ago one of my better bosses was a belts and braces man. We used to call it a “fail safe” policy. Our government too is supposedly a cautious and conservative lot? We were told in November, NZ was well positioned for early supply of vaccines. Given the greatly increased virulence of the new strains now at our border, where breaches into the community have occurred, why then are all staff involved in that area and its functions, at the least, not being inoculated right now?

edit to add. Sure it is not known yet if vaccination will stop transmissions but a precautionary measure is better than no measure, and at least the relative staff would be protected.

this deserves 100 likes! totally - if we vaccinated nobody else - just the MI staff and those managing all aspects of border control and MI -- we would immediately put a further security ring in place -- Awesome idea Foxglove

> Sure it is not known yet if vaccination will stop transmissions but a precautionary measure is better than no measure, and at least the relative staff would be protected.

Probably, but not necessarily. If the vaccine turns what would have been a symptomatic infection in an MIQ worker into an asymptomatic infection which is still transmissible, then the worker in question could actually pass it on to more people (because they don't have the symptoms as a cue to get tested).

Unfortunately we just don't know yet if the vaccines prevent transmission, just that they prevent most *symptomatic* infections. If you think about the design of the clinical trials, you can see why one of those things is much easier to test than the other. For symptomatic infections, just give people the vaccine, and wait to see if they get symptoms and then test them. Easy.

For asymptomatic transmission, you'd have to regularly test every participant for asymptomatic infection (already harder) and then track their contacts to see if their contacts got it, and then further track down where they got it from (way harder). So as of yet we don't know.

Tks but understood testing of frontline MIQ etc was on a regular roster, not just if symptoms were noticed in any one individual? Recall procedure introduced that if you were not prepared to be tested you could not work in that environment. Correct me if that is wrong, but if it is so and carries on that would leave those inoculated still being covered with no increased uncertainty as what it is presently?

Yes there's regular testing of all MIQ staff. But those showing symptoms, as opposed to asymptomatic, would be much more likely to notice before their next regular testing comes up.

If vaccination prevents transmission of Covid by the vaccinated to others, then yes, of course all frontline workers must be vaccinated. But if vaccination doesn't prevent transmission then it becomes merely a nice-to-have. Better not to shout from the soapbox till we know.
https://fortune.com/2020/12/22/covid-vaccine-infectious-face-masks-trans...

So from that, you don’t think that the staff involved in MIQ deserve protection, even if it could be made available?

Very desirable, but we have enough politicians telling other politicians what to do, and in what order to do it.

True, we sure have a surplus of politicians devoid of commonsense, but that is hardly the issue at stake here.

Not only politicians. A little more Qui vive by the people guarding our borders might not go astray.
https://www.rnz.co.nz/national/programmes/morningreport/audio/2018779665...

Aye, cannot disagree with that. so in the same vein “ respice, adspice,prospice” on the bulletin board each day then.

Foxglove...not to mention the indecisive dithering which seems to be the default with every issue. You would not want to be with this woman when she was choosing a new dress! LOL

Jacinda would rather set the scene so she can use Covid as her main cause when fighting the next election.

Why don't we do nothing and hope that helps then?

..and where are you going to find the staff to replace the ones that refuse the vaccine? Because plenty will.

35
up

Isn't it peculiar how it was such a tremendous faux pas to call it the "china virus", but now nobody seems to bat an eyelid about this slanderous "uk variant" labelling.

If we weren't shameless hypocrites we would be using the correct B.1.1.7 name wouldn't we?

14
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WuFlu was my favourite variant

11
up

Because my Asian wife is racially abused in the supermarket for creating the "China virus", yet I'm not racially abused for creating the "UK variant"?

Sure, we should call it B.1.1.7 and were hypocrites. But language has real world consequences, especially from world leaders using it to assign blame and divert from their own failings.

13
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This is why political correctness should be ridiculed. It's inconsistent gibberish at the best of times and when you scratch the surface it's usually just some clown pushing their politics.

Plenty of "hate speech" being directed at people from the UK on news article comments and social media at the moment. Calls for them to be banned from NZ. Disgusting.

26
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"hate speech". It seems now simply disagreeing with someone can be deemed as hate speech. What a ridiculous PC world we live in.

16
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Well as China is the epicentre of the whole debacle and authorities tried to sweep it all under the rug, the CCP actually deserve blame.

Australian government said the same and now certain private business operators are enduring significant Chinese imposed costs.

The Australians paying a steep price for starting "quarrels".

No one's denying CCP deserve blame, besides the CCP maybe.

northman.. did this happen in Manchester or Liverpool rather than NZ by any chance, or is that a racist question?

Why would that be a racist question? It was indeed in the UK.

I wasn't suggesting a Kiwi behaved like that. There are bad eggs everywhere, but we haven't had anything other than kindness from Kiwis in that regard. I'm very grateful for that.

Renewables rise to surpass declining coal use in the US energy mix. Natural gas is of course replacing coal as the fuel of choice.

https://www.renewableenergyworld.com/2021/01/05/eia-u-s-renewables-consu...

14
up

Silicon Valley geeks now deciding which worlds leaders can communicate in the public square.
"The centralized power over US democracy (and other democracies) concentrated in the hands of a tiny number of unaccountable Silicon Valley oligarchs is stunning, unprecedented and unsustainable."
https://arstechnica.com/tech-policy/2020/10/house-amazon-facebook-apple-...

Rupert Murdoch has been at it for years. He's not been anywhere near Silicon Valley.

I guess Twitter and the like are a much more direct and unedited form of communication. Not saying ones necessarily better or worse but communication from world leaders shouldn’t be blocked in my opinion.

Respectable leaders maybe not, insane people in positions of influence like the Dumbty yes...theres a difference.

Who decides what is respectable? The leaders of Iran can spout their bile and communist interment camp jockeys can carry on - but the guy who started less wars than any president in living memory is "insane" and must be banned. Lefty logic.

I don't know why this is so confusing to these guys. The online media platforms are private businesses with codes of conduct and terms of use. You agree to the terms of use or you don't get to use the platform. They can do what they want with their platform as far as the law regulates it. If a country wants to impede on a media platform to uphold certain laws, then they need to do that through their legal system, as indeed they have.

they drive a lot of the online narrative now - the republicans will be spewing at yet another right wing publication goes commie - lol

#Bitcoin extends losses as UK's financial regulator FCA issued a very blunt warning about the rise of bitcoin and other cryptocurrencies: 'Prepare to lose all your money.' Link

.

Old school economists: Bitcoin has crashed 20%! Doom! Catastrophe! It's going to zero! THE CRYPTO SKY IS FALLING! [relevant, as only 50+ use caps in posts]

Also old school economists: Be fearful when others are greedy, and greedy when others are fearful.

See you all at 50k on the rebound folks.

14
up

"Whenever you find yourself on the side of the majority, it is time to pause and reflect." - Mark Twain

As far as I can see Bitcoin is useless as a currency for the following reasons:

1. Far too unstable. When going up would go by a burger with it when it might be worth 10x the price next week? or when it is going down would you sell a burger and accept it as payment? I most certainly would not.
2. Too slow last time I looked takes 10 minutes to validate a block.
3. Very energy inefficient from https://digiconomist.net/bitcoin-energy-consumption bitcoin uses more than 400,000 times more energy per transaction than visa, if bitcoin was actually widely adopted forget about cars, this is what would kill the environment. I have done a calculation and scaled up the number of visa transactions that are performed it would consume more power than the entire world currently uses.
4. It has high fees from https://privacypros.io/tools/bitcoin-fee-estimator/
- Next Block Fee: fee to have your transaction mined on the next block (10 minutes). 8.91 USD/transaction
- 3 Blocks Fee: fee to have your transaction mined within three blocks (30 minutes). 8.91 USD/transaction
- 6 Blocks Fee: fee to have your transaction mined within six blocks (1 hour). 7.69 USD/transaction
can you image going to the diary and paying an extra $12 to by a bottle of milk or even a whole shop at a suppermartek, for large, or international transactions, sure its fine but every day spending its way more expensive, and will take at least 10 minutes to process.

If someone can tell me how bitcoin would actually work as money then maybe I will bite, but all I see is fear of missing out, and the greater idiot principle at work here. Sure you may make money on it, I don't want to underestimate the lunacy of some people but it makes no sense to me.

For those who prefer macro data over reckons and short term trends, Lyn Alden is a great read. Here's her latest analysis looking at 1930/40 vs 2010/20. Very pertinent for the hour.

Key points:

* By a number of metrics, the 2008-2020 period was similar to the 1929-1940 period.
* However, monetary policy and technology were very different, which disguised some of the similarities.
* Portfolio positioning for rising populism and ongoing fiscal dominance.

- The Hindsight Depression

S##con unstable! How can that be??
The oxygen molecule is a stable diradical, best represented by ·O-O·. Because spins of the electrons are parallel, this molecule is stable. While the ground stateof oxygen is this unreactive spin-unpaired (triplet) diradical, an extremely reactive spin-paired (singlet) state is available.

American consumer expectations for future inflation are rising, even if the rise isn't sharp. +3% seems to be what American expect in both the medium and longer term.

The TIPS rate along with a minimally higher 10-year is declared proof positive the Fed has been successful at its inflation engineering when there’s everything here (including oil, too) to contradict that assessment.

To begin with, the other part of TIPS no one ever talks about. Real yields. Because nominal Treasury rates haven’t moved all that much, the rise in oil prices, particularly the post-vaccine move, has had to come at the expense of so-called real rates. This changes the interpretation entirely.

Both the 5-year and 10-year real rates have fallen dramatically, staying down despite all these recent “positive” developments which are said to be economic game-changers. In fact, the real 10s yield is equal today to its lowest on record while the 5s are mere bps from their own.

What does that mean? No recovery, no inflation. Rather, TIPS are being moved higher by expectations for the CPI to be better, on average, because of higher oil prices alone. The economy itself, which is what would produce actual inflation – sustained, broad-based increases in all consumer prices not just one or a few commodities – is being priced simultaneously as if prospects for the intermediate and longer terms have changed very little.

In other words, a woeful economic situation which would be made worse (more miserable) by rising crude. Link

Audaxes,

What do make of this, its Jim Grant.

' In a somewhat technical discussion, Mr. Canale describes the “worst” debt covenant environment he has ever seen, surpassing the peak of the Housing Bubble.

As discussed in the interview, the anticipated default rate on high yield bonds over the next 12 months (9%) is now roughly double the yield on those bonds (~4.5%). Nonetheless, virtually every flavor of the credit market is seeing record issuance and the worst covenant protection in memory.'

https://thesoundingline.com/anthony-canale-jim-grant-debt-covenants-wors...

14
up

I am more concerned with the return of my money than the return on my money.

Same as US banks

Audaxes: Ditto
I'm soon to sell a unit that I bought a decade ago for my semi-disabled sister as she is no longer able to cope independently. She has in fact been living with me for over a year and the unit has remained empty: As it's worth around $800,000 with no mortgage to repay, I'm ambivalent as to whether to put the proceeds in the bank or not. In fact I'm now thinking I maybe better off just leaving it empty and not selling. I'm not into becoming a rentier as I was terminally traumatized by my first and only experience with renting out a property, which I had renovated, in 1974 when I let my house out to a seemingly nice family while I did my 'OE'. When I came back from overseas the inside had been trashed by the three kids....no parental control. On the other hand such articles on the state of the banks as appeared in today's blog make one uncertain about their stability. (But despite living frugally on my pension and meagre share returns, I could do with some extra income to pay for 'extras' such as membership fees for this blog, garden tools, etc, so at least some money in the bank wouldn't go amiss....but where's a secure repository for the rest?

And coming from last place BTC nudges ahead and looks to have rerecovered its rider ...moves past Rastus easily...and now overtaking Jimbo Jones..

..i have no doubt that may some can make a fortune on trading bitcon.
But I have no doubt it will eventually be found out as just a worthless piece of software, burning through the equivalent electric consumption of Austria. It is the con of the century. Go for it... but don't kid yourself it is any purpose or use that the world will ever need or embrace.

Rather than post here Rastus why don;t you go away and do some research and come back with some facts to base your comments on?

I have done plenty - in fact the professional body I belong to had Zero books in their library when I requested one many years ago.
I've read much since.
I am very confident it is the ponzi scam of all time.
But sure...trade away, tulips made a lot of people rich.
But it is not unique, has no purpose and fills no need (what do you use it for?) It is a nothing, a consumer of power (Austria size requirements I believe).
It's a joke.

Try this read ...come back to me when you finished,...
https://www.amazon.com/Bitcoin-Standard-Decentralized-Alternative-Centra...

and you need to back up such statements with some data or fact "I am very confident it is the ponzi scam of all time." Otherwise you just sound like Trump supporters

Don't even bother trying to educate these luddites frazz. They'll be the same people crowing that Bitcoin is a scam when it crashes from 350k to 80k around September 2020. And the same complaining there's no BTC to buy as it pumps to 1M+ per coin during the next halving with failed government central banks buying in OTC to create a reserve standard for their own CBDCs.

Human greed blinds so many. Go for it children.

Nice personal attack, but the single reason I'm in cryptocurrencies, is to preserve the purchasing power of my savings akshully. The fact I'm up 250% is just a pleasant side effect, and ultimately it's money I can afford to lose if everything goes to 0. Have fun being pOrr.

David, FYI today's prices in the BTC chart were entered as 12th Jan 2020 instead of 2021.
The mistake we're all gonna make every day for the next month or two :)

Thanks.

Sorry it took so long to get sorted.

11
up

Tesla next. Massive bubble share price
Expect 50% decline by end of March, if not earlier

Massively overvalued, I agree, and I love the company and the cars. But exactly when the crowd sees that... hard to say.

Short term I agree on the overvaluation, by quite a bit, the market is ahead of itself. But I'm not selling. I'm up 1500% but I'll ride out a 50% decline if necessary. I purchase on a long time horizon so nothing has changed there in my thinking, it's just risen faster than I expected. Long term I think we'll see Tesla settle in the $700-$900 range on EVs and Insurance alone. Currently very few are factoring in energy which is likely to be more valuable than the car division. That will push it's value in my opinion between $900-$1500. Autonomous is the wildcard and the main reason to hold, if they solve that they become the worlds most valuable company by some margin, $3000-5000 a share by 2035.

Completely autonomous driving is at least a decade or two away. The current technology is way behind what's needed, and the legislation is gonna be really slow to adapt as well.

The march of 9s will indeed be difficult, and may well take 10-20yrs to finalise. But I disagree on the legislation. Driving is the most dangerous activity almost every human does in their entire life, and they do it every day. As soon as the data is there to prove autonomous is markedly safer, you'll see things move very quickly. Look at how desperate the government is to curb road deaths with speed changes and enforcement, when the actual problem is bad driving. It's quite likely that those being born this year will never drive their own vehicle.

What I think will take many years is to come up with laws that deal with the responsibility in case of an accident, and regulations re what kind of decisions a machine can make in dangerous situations.
There are many questions that were philosophical up to this point that will now demand an official answer. Such as, if the car is about to hit a pregnant woman, but could steer right and hit an old man instead, how should the software decide?

Would depend if it was programmed by an economist or an environmentalist

The problem will not be with economists or environmentalists, or even engineers, but much worse: lawyers.

Tesla looked massively over valued in March last year as well and..... so who knows. I suggested my mate sell his Tesla shares then. Luckily he was smart enough not to listen.

Here’s a thought, as opposed to solely investing on perceived future returns or fundamentals maybe some people investing in Tesla are doing so because they see it as a positive for the world. Kind of activist investing. Electric cars, power walls, all sorts of things that would help to address climate change. I would love to see a break down of who’s invested but I would hazard a guess that there would be a larger portion of younger investors for whom those issues matter with Tesla.

I think Elon Musk's charisma is a big factor also for some investors

..the only difference between tesla and btc is that tesla is an actual product.
My call is that when the world wakes up and prices these two correctly, it will be trigger much much more.

I'd quite like to see a chart of tsla in btc terms. Not sure of an easy way to do that though.

When the world wakes up..yes you are correct Rastus - those two will go higher in valuation

yep quite likely. It is pretty clear that the punters are investing on the bigger fool thoery (Robin Hooders)...confident that someone else will pay more and giving them time to pull out their own 'winnings' (this is gambling).

Of course no one thinks they will be the one that gets caught.

Evidence over the last 10 years on your theory?

My theory that BTC is a crock of s##t?
Its all out there.
Tether being the latest bunch of crooks manipulating the ponzi.

https://medium.com/texas-mccombs/tether-connection-puts-bitcoin-at-risk-...'s%20price%20increase.

I think you'll find there's some SpaceX value baked into it already

hodl

Tesla Model 3 overtakes UK’s most popular gas cars in December 2020 registrations
https://www.teslarati.com/tesla-model-3-uk-december-2020-registrations/?...

The ICE addiction is waning..

We are not many years away from EVs being the same price (or cheaper) than an equivalent ICE vehicle. You will have a car with little to no running cost, little to no maintenance cost in comparison, longer range and better performance. Once that happens the petrol engine dies and its dies FAST.

I lot of hopium in this comment
The first problem being an EV will never be cheaper than the car i already own

"Why would I ever replace my trusty horse and buggy I already own, for a more expensive motorcar?"

See picture of 5th Ave New York, Easter morning 1900 vs Easter morning 1913.
https://www.businessinsider.com.au/5th-ave-1900-vs-1913-2011-3?r=US&IR=T

Cars have substantial economical advantages over horse and cart. Can't yet say the same about EVs over ICE

I agree right now, but it's only a matter of time.

Plus such a better drive by a country mile and no noise - que petrol heads comments !

If ICE does die, govts will have to make up for the tax deficit in the form of RUCs. So I beg to differ on the running costs

I agree that RUCs would come for EVs, and somewhat close the gap in running costs, but there would still be a big advantage.

500km in our ICE takes about 50l x $2.20/l ~ $110.
500km in our EV takes about 80 kwh x $0.11/kwh ~ $8.80.

RUC on 500km ~ $35. So still less than half.

I highly doubt the bureaucrats will concede a lower tax take for vehicles. They'll get it one way or another. RUCs will go up

Even if the taxes are exactly the same you save a lot.

Thats my point. They won't be, they'll be much higher

If you can easily afford to put gas in the tank you don't care. It all comes down to money at the end of the day. Trust me, you find that if your financial position in life suddenly changes, so does your whole way of thinking. There is no way I would buy an EV at the present time. How long an engine lasts is all about maintenance. I can get 25 years out of a car or over 200,000km, the ICE is proven tech, how many battery pack replacements is that ? The ICE needs one set of spark plugs replaced, a few filters and oil and the alternator rebuilt.

Plus a regular supply of dinosaur juice...$$$ per month from your worn out wallet.

You're years out of date with the battery pack replacement comment, and your estimates of how long you can keep a ICE car for have already been beaten. A current Tesla battery already has an approximate life of 800,000 km (500,000 miles) maintaining 80% efficiency. No one has got there yet, but most owners report 90% efficiency after more than 240,000km (150,00 miles) Tesla's warranty in NZ on the Model S Battery and Drive unit is 240,000 km with minimum 70% retention of Battery capacity. They've said the car itself is designed for a million miles (the advantage of the less parts compared to an ICE vehicle). Personally I don't think any car will ever last that long, but the point is it's not a concern. They will have a million mile battery to match within the decade.

I've spent enough on a modern-ish ICE in the last four years to buy a new battery for a Leaf, even with its crappy tech and availability here - and that's before third-party battery packs take off. A modern ICE is a complex beast, requires sophisticated equipment to service properly and they are still not free from failures. You're likely to also need at least one timing chain or cambelt in that timeframe, and a clutch - and that's assuming nothing else goes wrong with it - which is a big if. Assuming you're going to get 600km a tank and energy costs at 50c for the EV and $2.00 for the ICE, that's going to be 330 tanks at a $1.50 marginal extra cost to cover your 200,000km. You can see where this is going.

ICE and Tesla are not one and the same.
Many new electrics coming. Tesla is priced as if it owns the market. It don't....its a tiny tiny we bit of it.
Share price verse performance of company is the absurdity.

. - .

WEEEEEEEEEEEEEEEEEEEEEE!!!!!! That's wild ride for my crypto holdings alright.

Re Scary virus mania... There seems to be an increasing divide between the reported narrative and what's actually happening https://www.euromomo.eu/graphs-and-maps