China posts strong Q4 economic growth; but questions of inequality and productivity grow; Singapore's exports surge; Australia sees overseas travel unlikely in 2021; UST 10yr at 1.09%; oil stable and gold up; NZ$1 = 71.2 USc; TWI-5 = 72.7

China posts strong Q4 economic growth; but questions of inequality and productivity grow; Singapore's exports surge; Australia sees overseas travel unlikely in 2021; UST 10yr at 1.09%; oil stable and gold up; NZ$1 = 71.2 USc; TWI-5 = 72.7

Here's our summary of key economic events overnight that affect New Zealand, with news China is 'buying' its resurgent growth which is coming with some large-problem downsides.

But first, the US is on a public holiday today - Martin Luther King Jr Day - and the NYSE is closed. Overnight, European markets were mixed with Frankfurt up +0.4%, Paris up +0.2% but London down -0.2%. Yesterday, Shanghai rose +0.8%, Hong Kong rose a full +1.0%, but Tokyo went the other way and was down -1.0%. The ASX200 ended its session down -0.8% and the NZX50 Capital Index fell -1.4%.

In China, their Q4 economic growth beat expectations when it was released yesterday afternoon. That growth actually came in at +6.5%, and significantly above the expected +6.1%. For an economy as large as China, that difference is quite something. (For the year, it is +2.3% higher than for 2019.) Driving this Q4 rise is a strong rise in industrial production (+7.3% vs the expected +6.9%). Electricity production was up a very impressive +9.1% in December from a year ago, driven by the current cold snap there. But retail sales under-performed, rising only +4.6% when a +5.5% rise was expected. Clearly their two-track "dual circulation" isn't working in a balanced way yet, despite the glorious claims.

In fact, the reliance on huge government subsidies and stimulus is making inequality worse in the Middle Kingdom. And productivity (output per worker) remains very poor. It is only 30% of the level in first world countries like the US, Japan and Germany. China's SOEs and 'investment' in public sector projects gets the blame. China's real risk is "getting old before it gets rich". It must fix its huge productivity problem to avoid that outcome. And sorting out its worsening inequality is where it must start.

Singapore's exports staged a significant and substantial rally in December, rising +6.8% after two months of worrying declines. This was mainly based on growth of specialised machinery rather than electronics and was despite exports to China, the EU, Indonesia and Japan all declining. The US, South Korea, Hong Kong and Thailand were where the big growth for them was.

In Australia, officials there are now indicating that "overseas travel" is unlikely to return in 2021.

The latest global compilation of COVID-19 data is here. The global tally is rising faster, now at 95,179,000 and up +477,000 in one day. We are heading for 100 mln in about a week now 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 2,034,000 and +9,000 since this time yesterday as death rates rise everywhere.

But the largest number of reported cases globally are still in the US, which rose +161,000 for their tally to reach 24,489,000. The US remains the global epicenter of the virus. The number of active cases rose overnight and is now at 9,652,000 and that level is up +75,000 in just one day, so many more new cases than recoveries and again by a substantial margin. Their death total is up to 407,000 however (+1000). The US now has a COVID death rate of 1226/mln, awful but made to look 'good' by the the disastrous UK level (1320) where deaths are surging.

In Australia, their 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 managed isolation intercepts. That takes their all-time cases reported to 28,721, and only +13 more cases yesterday with all in managed isolation, mostly related to the Melbourne tennis tournament. 203 of these cases are 'active' (-12). Reported deaths are unchanged at 909.

The UST 10yr yield will start today unchanged at 1.09%. Their 2-10 rate curve is unchanged at +95 bps, their 1-5 curve is still at +35 bps, and their 3m-10 year curve is also unchanged at +101 bps. The Australian Govt 10 year yield is unchanged at 1.03%. The China Govt 10 year yield is firmer by +3 bps at 3.19%, while the New Zealand Govt 10 year yield is marginally lower and now at 1.02%.

The price of gold is up +US$8 today in New York in truncated trading and now at US$1838/oz. In India, there is a surge in weddings, many delayed from last year due to the pandemic. And that is contributing to a healthy rise in demand for gold in the country.

Oil prices are just over US$52/bbl in the US while the international price is now just under US$55/bbl and both are very little changed.

And the Kiwi dollar is slightly weaker again today from this time yesterday at just under 71.2 USc. Against the Australian dollar we are softer as well at 92.5 AUc. Against the euro we are down to 58.9 euro cents. That means our TWI-5 is now down at 72.7 and its lowest of the year so far.

The bitcoin price is virtually unchanged this morning compared to this time yesterday. It is now at US$35,710. Volatility has been +/- 3.8% in between however. 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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66 Comments

Hussman

As I’ve often discussed, the only aspect of the recent speculative bubble that was truly “different” from other market cycles across history was this: even extreme syndromes of “overvalued, overbought, overbullish” market conditions failed to signal a reliable “limit” to speculation
https://www.hussmanfunds.com/comment/mc210118/

Wolf on US housing market

https://wolfstreet.com/2021/01/17/when-the-market-defies-all-logic-its-t...

Re Hussman:

On the subject of Bitcoin, my rather unpopular view hasn’t changed at all: Blockchain is a remarkable algorithm. Bitcoin is a limited-supply token generated by a replicable, low-bandwidth, wildly energy-inefficient blockchain app, with neither government fiat, physical convertibility, nor reserve requirements to compel its use, or to make it something other than an abstract numeraire. The value of any currency is essentially the discounted stream of services it is expected to provide as a medium of exchange and a store of wealth. That value relies on the willingness of a whole sequence of successive holders to accept the currency. It’s turtles all the way down. Ultimately, the confidence of those successive holders requires some feature – fiat or convertibility – to pin it to the real world, so it’s not entirely self-referential.

Thus far, the main use of these tokens outside of speculation seems to be for the purpose of exchanging the tokens themselves (which smacks of money laundering). The psychological value of these tokens seems to be largely based on the backward-looking sunk-cost of the energy wasted to “mine” them, by producing a validation hash (as “proof of work”) for a given block of transactions. Whoever produces that hash first gets paid. Everyone else’s computational “work” is completely wasted. It’s rather tragic from an environmental perspective, and I wouldn’t be terribly surprised if Bitcoin was actually a brainchild of the energy industry. There’s also a subtle Ponzi-like aspect in that once you own Bitcoin, you’ve got to participate in a future transaction block to get out, regardless of how much that future block costs to validate.

Still, even if a bubble is entirely self-referential, it doesn’t mean people who get in early can’t also obtain a transfer of wealth from some subsequent speculator before the bubble collapses. It’s just that everyone assumes it will be someone else. Give people a limited-supply object coupled with a speculative mindset, and Dutch tulips gonna Dutch tulip. I also hear that on the Neopets app, paintbrushes and unconverted Neopets are selling for over a million NeoPoints.

Dear Heads of the Co-operative banking associations and savings banks associations in Europe:

What are you doing to stop the annihilation of local community banks by the ECB introducing CBDC?

ECB paper: "CBDC takes over sight deposit issuance by banks"
https://ecb.europa.eu/pub/pdf/scpwps
Link

Re: Hussman.

Shall we add that as the 351st Bitcoin obituary? https://99bitcoins.com/bitcoin-obituaries/
I'd hardly call his view unpopular, it's very popular. Maybe someday one of them will get it right.

I agree entirely with Hussman

Every Bitcoin "investor" eventually wants to convert it into real money, but only once a profit is made.

Once they run out of bigger fools to sell them to it will crash once again.

If you own a house or gold and the market crashes at least you still have a house or your gold, with bitcoin or cryptos you have sweet FA

Hussman's views exactly echo my own. People who are making money will refuse to believe it... I guess that's OK. I admire those canny enough to have got in on the ground floor of Bitcoin, even though I think it's ultimately a Ponzi. I can understand falling in love with the idea of it, and how strongly that would be reinforced by making a stack of profit from it too. Still a Ponzi.

even though I think it's ultimately a Ponzi.

Have you ever stopped to think why BTC is a 'ponzi' or do you say that because your imagine that anything with such spectacular returns must be a ponzi?

It's a Ponzi because its value depends on a continuous stream of new investors willing to pay more than the old ones. Like all Ponzis, that reaches a breaking point eventually. In our very speculative, liquidity-flooded environment, that breaking point might still be some distance off.

And yes, an investment promising such spectacular returns *usually* is a Ponzi.

Wrong. A Ponzi requires new investors to pay the returns owed to existing investors usually involving a fictitious instrument. The Bitcoin market is the sale / purchase of a fixed amount of units, which can all be verified on purchase and taken into self custody. It is not a Ponzi scheme.

Doesn't seem like a crucial difference to me. Madoff didn't have to pay out earlier investors, just reassure them that their capital was steadily growing. Still a Ponzi.

No it's not. It doesn't even meet the basic definition of a Ponzi.

Yep, just another person hwo hasnt done enough research, a very common opinion indeed.
https://www.swanbitcoin.com/why-bitcoin-is-not-a-ponzi-scheme-point-by-p...
Few points in there he might like to consider.
Time will tell, sit back and watch.

Yep, just another person hwo hasnt done enough research.....

Pointing towards a rebuttal doesn't mean Lyn Aldern is right nor should it give you any false confidence. You shouldn't own BTC if you cannot accept that it may have weaknesses.

Yes, time will tell. I may well be wrong, it's happened before. But it does gall to be told "do your research" just because you're not keen on crypto. I've done a lot of reading on it -- more than the people I know who have actually paid for the stuff.

Yes, time will tell. I may well be wrong, it's happened before. But it does gall to be told "do your research" just because you're not keen on crypto. I've done a lot of reading on it -- more than the people I know who have actually paid for the stuff.

I think it's a bit of a stretch to say you know more about BTC than people who own it. From experience, I can say that it's difficult to understand the market properly if you haven't bought, sold (I've never sold), and self-custodied your own Bitcoin. Have you read 'The Bitcoin Standard'? An interest dot co commentator who claimed to be knowledgeable thought The Bitcoin Standard was Nakamoto's white paper.

I found this interesting.

https://crypto-anonymous-2021.medium.com/the-bit-short-inside-cryptos-do...

Whether its true or not....who knows...its on the internet :)

If it is... huge news. Would mean that the majority of bitcoin purchases have been fraudulent.

Fantastic read!

there are a lot of people who are too caught up in cryptos to take the advice, almost like a religion.

some will have to learn, if its too good to be true, it probably isnt

The great Tether conspiracy.

This Tether conspiracy theory is well known. You could believe the random commentator on the Internet, who says there's no real demand being purchased in actual USD. Or you could believe the official declarations from publicly traded companies.

The fully regulated New York based Investment firm 'Greyscale Bitcoin Trust' has purchased ANOTHER 26,128 bitcoin for it's clients. That's approximately a BILLION USD worth, in the LAST 6 DAYS!

Microstrategy has spent 1.125 BILLON USD in purchasing Bitcoin for it's strategic reserve in the last few months.

Ruffer Investments in the UK (29B under management) has purchased approximately 740 MILLION USD worth of bitcoin over the past few months.

The massive Guggenheim Investments (270B under management) has revealed in it's regulatory filing it is purchasing approximate 530 MILLION USD worth of bitcoin to start for it's macro opportunities fund. That will be via the Grayscale Bitcoin Trust.

Insurance giant Massachusetts Mutual (Est 1851) just announced they have purchased 100 MILLION USD worth of bitcoin for it's general investment account.

Yup, there's no actual demand. It's all just fake (tether) news.

Tether has become an "unregulated fractional reserve bank".

https://www.forbes.com/sites/francescoppola/2019/03/14/tethers-u-s-dolla...

15
up

Today Im trying to bale hay before the gales arrive, forecast after lunch is for gale force westerlies. We mowed it yesterda, with the heat and wind it's ready to go. Just some insurance, I've never seen a year when everyone did hay and there was any left in the barn 2 years later. So something is coming up.

Two farms have been sold in Central Hawkes bay to Carbon credit forestry. Two good family farms, not steep east coast land, good sheep and beef land, although on clay. This is madness when will it end? Someone needs to step and make this stop before it's too late. Taxpayers will be paying offshore owners of NZ forests for 30- 50 years instead of earning exports of that land. Then those companies most likely will be put into bankruptcy and we will all be left carrying the can.

Radiata is an amazing tree it can go months without rain(150 days) it's a survivor but these will be high density carbon sinks not for milling.

'We moved as the Spirit listed. They never altered their pace,
Being neither cloud nor wind-borne like the Gods of the Market-Place;
But they always caught up with our progress, and presently word would come
That a tribe had been wiped off its ice-field, or the lights had gone out in Rome.
With the Hopes that our World is built on they were utterly out of touch.
They denied that the Moon was Stilton; they denied she was even Dutch.
They denied that Wishes were Horses; they denied that a Pig had Wings.
So we worshipped the Gods of the Market Who promised these beautiful things

https://www.poemhunter.com/poem/the-gods-of-the-copybook-headings/

Burns, To a Mouse

But Mousie, thou art no thy-lane,
In proving foresight may be vain:
The best laid schemes o’ Mice an’ Men
Gang aft agley,
An’ lea’e us nought but grief an’ pain,
For promis’d joy!

Still, thou art blest, compar’d wi’ me!
The present only toucheth thee:
But Och! I backward cast my e’e,
On prospects drear!
An’ forward tho’ I canna see,
I guess an’ fear!

https://www.poetryfoundation.org/poems/43816/to-a-mouse-56d222ab36e33

Carbon sink madness indeed. But maybe it's bureaucrats gone mad as usual.

12
up

Sadly your last sentence sums up one of NZ’s & NZr’s, escalating problems. Those working in rooms without windows decreeing how others must live their lives.

16
up

Yes absolute madness but its what you get when government follow ideologies dictated by the UN and don't think of the full consequences of allowing overseas interests to buy your principal economic asset, our productive land. We will be the poorer for it.

How does this work AndrewJ? I would have thought that most of the land in the Central Hawkes Bay would have been beef or dairy as this is where you maximise your profits economically. How is is economic to convert a beef farm into pine trees? Do those growing pine trees get some sort of subsidy from the govt? Genuinely curious.

donny11 - every time you fill up your vehicle you give 9-10 cents a litre to a foreign investor or landed gentry to plant trees and collect carbon credits - in a vain glorious attempt to change the climate back to the little ice age. This policy also helps alleviate child poverty by closing rural schools and moving kids to the big smoke.

"All fuels also pay an Emissions Trading Scheme levy (approximately 9 cents per litre for petrol, and 10 cents per litre for diesel)."

Seams like a rigmarole to me. The worst part is that NZ cites are essentially designed for the automobile. This makes the demand for petrol inelastic. So the levy of 9-10 cents has minimal effect on the way people commute. They basically they have no choice but to pay the tax. This makes the whole point behind the tax redundent. As carbon emissions from vehicles do not drop due to the tax. Removing parking minimums would probably do more over the long term to reduce carbon emissions than the whole EMS scheme.

Naturally it depends on whether you want to reduce car usage or tax that usage and transfer the income stream to a pet project that suits your political needs.......... if your leaning is to tax and spend then you'll love this, no matter what the official line is. Or you could subsidise a pet project such a electric vehicles or public transport, both of which need copious public funding from non users to become economically viable.

Its the free "market" working Andrew. One minute you want the government to keep out of your life, the next minute you want them in...
??

13
up

The Government is the problem with 'Carbon Credits', hardly the free market in action

No such thing as a free market at the moment

We're fully exposed to the NW winds (they were fairly strong yesterday and full-on so far this morning) and were looking forward to the 9.7mm forecast over the weekend but we didn't even get enough to trouble the rain gauge. The ground is cracking open, and I can't get a spade in it for love nor money. We have a paddock we're trying to get hayed but no one's interested because it's small fry. With no rain to speak of and no one willing to process it we're just going to have to run the flail mower over it and mulch it all back in since it's quickly becoming a fire risk.

I don't know where you live but there are contractors who do small blocks, after the baler finished with me he went down the road to a lifestyle block and did 5 bales

Pretty sure we're not that far from you. The "smallholder" contractors we've spoken to said they'd take a look but never got back to us. Maybe we annoyed the wrong person at some point.

try Johnny Scheele, either he can or he will know someone who can.

Thanks again for the contact.

YES! The absolute madness of offsetting is coming home to roost. It is one of the main arguments why I have been kicking and screaming about this for years - the distortions of doing the wrong thing to start with will be worse than we can all imagine. Prepare for much of NZ's productive land to be put into unproductive mono culture pine forests. The economic incentives may become so perverse that we may even start burning down our own native bush and replanting it in pine forest.

The solution is simple - global taxes on carbon, at the same level in every country, increasing over time. With the money returned to the UN to form part of it's base funding, particularly for the mitigation and disaster relief. It is a global problem and the only way we will ever effectively address the issue is global carbon taxes and global responses. Anything else IMO is pissing in the gale force winds.

Good coverage on China, outlining some of the big headwinds I alluded to the other day.

I'm starting to think that Covid almost certainly came out of an international research lab in Wuhan. The international research organisations went there for the same reason the corporates do, less regulation and cheap labour. Gain of function is illegal in most of the West.

Well in overnight news China is now releasing it's own GM plants, if this goes wrong it could get very interesting, if Rice or numerous other crops go Frankenstein .

China's seed self sufficiency drive.

https://dimsums.blogspot.com/2021/01/chinas-seed-self-sufficiency-strate...

It will be impossible for any investigation to establish the virus originated from the Wuhan lab, accidentally or not. And even if that was established it would never be admitted. Ironically the CCP has as an economic regard for the truth as Trump.

That's what I think too.
But as you say, even if true we will never know...

Aj precognizant. The Herald runs a column today. Regret too much the luddite to copy or paste here, but someone may assist?

If anyone doubts the size of corporate investment in Brazil, Soros et al are huge

https://twitter.com/i/status/1350930106513059842

Sad to hear of established farms going to Carbon Credit ruin. I've worked on many blocks where the life of the community just dies. Why not have corridors of something productive grown amongst the blocks? e.g. Manuka with access for beekeepers and continued local employment? Is pine specific to gaining credits?, it's our land why not set some of the rules ourselves, these are our communities..

Planting manuka has one major drawback. If the market ever crashes, then that land will be only good for carbon credits.

Yes I agree, Manuka is just an example but an established market and would at least provide some diversity and some expenditure (at least the purchase of a pie and a coke at the servo and some contact with the outside world). Next time you're on a gravel road, have a think about the change in these communities. Apart from the initial planting and perhaps some boundary fencing maintenance, nothing else happens. (Great for hunting I guess!)..

Same happens with beekeepers but not to the same extreme. Many of those farms will only have bees on for the honey flow and are then shifted back nearer to home for the rest of the year.

Andrew. Can you tell where in CHB the two farms are and how much /ha they sold for?.

Give me a week

"Meanwhile, Australian authorities are chasing more details after Norway reported a small number of very frail people died after receiving the Pfizer vaccine"
Also
Nobel Prize winning immunologist Peter Doherty:
“When you roll out enormous amounts of vaccine and vaccinate enormous numbers of people very, very quickly, some people are going to get sick and some people are going to die because they would get sick and die anyway,”

This sounds like we are prepared to accept that frail people can die from the vaccine but they are not allowed to die from Covid?

You have a point, oblique but still a good point. Illustrates the endless anguish and dilemmas that medical practitioners and family must face deciding for instance to turn off life support. That though has to be evaluated and decided case by case and undoubtedly the same criteria will be introduced for those deemed too frail and/or sick to accommodate the vaccine. Big difference in that though compared to a general determination that it would be pointless to vaccinate all those that are aged and infirm.

There have been 29 deaths reported out of 42,000 vaccines as far as I have seen. The vaccines will have been given mostly to the oldest and frailest people. This is a 0.07% death rate, several orders of magnitude lower than their risk of death if this population contracts the disease. Furthermore, I haven't seen any reports directly linking these deaths to the vaccines - It's a simple fact that elderly, frail people die relatively frequently. Just observing the population after vaccines are delivered will find a few deaths that aren't related at all.

Not to belittle the deaths, and I'm sure that it is being investigated to rule out any significant causal factor. However, this is currently a long way from being a convincing argument against giving the vaccine to elderly populations.

https://www.newshub.co.nz/home/world/2021/01/covid-19-no-evidence-pfizer...

Agreed, If the vaccine causes a .1% death rate in a population of people that has about a 5% death rate for COVID then your odds are 100x better taking the vaccine.

Time to open up this country again. We don't need the holistic, anti-vaxer types derailing this.

The problem her is that Covid death rate is 0.001%, compared to 0.1% death rate from the vaccine.

Wildly inaccurate figures. Remember this is a population of >75 years old, making your figure even more incredulous.

The raw figures from worldwide reported cases and deaths show a 2% death rate - of course there's massive underreporting but I haven't seen any credible source for the actual death rate being less than ~0.3-0.5% - two orders of magnitude higher than you are stating. In a population >75 years old, this would be much higher, more like 5-10%.

You also do not address how many of the 0.1% death rate from the vaccine are incidental and unrelated.

You are correct. I think it is about .3%. The below study is an excellent read if you have the time. Very well thought out

https://www.nejm.org/doi/full/10.1056/NEJMoa2026116

As you say at 85 years old the IFR is somewhere between 5 & 10% if a vaccine works on this age group & it gets the IFR down to even .5%. Then it is happy days. We can open back up to the world. If an elderly person doesn't want to take the vaccine for whatever reason then that is fine. But they need to understand New-Zealand can not stay isolated from the world indefinitely. We will eventually need to learn to accept & live with this virus.

Just to hammer home the craziness of this - with a 0.001% death rate, if the whole world were infected there would be 70,000 deaths. Even small countries like the UK have exceeded this already and are still counting.

Nearly a month into monitoring the Hutt Valley rental market for new listings.

Rent asking prices are running on average 13% above tenancy.govt.nz weekly estimates for market rents and 25% above my affordability formula (targeted at 30% of household income to weekly rent costs).

Where is the government?

This government and the preceding one are populist caretakers who appear to have zero vision and (this one in particularly ) even less ability to execute. To suggest that they will somehow legislate rents is likely in la la land. I mean 10s of thousands marched for them to do something about climate change and instead of doing something, they decided to make the situation worse by allowing more and more emissions. I suspect it would take nothing sort of violent revolt to get them to rethink policies that actually affect people.

This is a paper the RBA has used to evaluate the effect of its policy settings on housing.

It estimates a permanent 1% drop in interest rates causes a permanent 30% rise in house prices. It also estimates the population surge from migration in the late 2000's has caused rents to be 9% higher than they would have been if population growth had been 1.5% rather than 2.4% p.a.

https://www.rba.gov.au/publications/rdp/2019/2019-01/model-responses.html

https://www.theage.com.au/politics/federal/rba-says-low-rates-will-push-...

Thanks for posting

The problem is the local government and their subdivision rules. There would be more buildings and more houses to live or rent out, if those rules are loosened and in some instances just less ridiculous.

The problem is unaffordability.

Planning rules were relaxed across Lower Hutt a year or so ago and lots of two-story attached townhouses on sections that are smaller than the houses themselves have been built. Here's one with a 134m2 house on a 200m2 section;

https://www.realestate.co.nz/3919106/residential/rental/113a-witako-epuni

But none of those that have been listed in the last 4 weeks have yet been let. Asking prices have gone from $725/week earlier on, and seeing prices lowered to $680/week. Still sitting though.