US data positive, mortgage rates rise; German business sentiment up; ECB worries about rising rates; China declares food security issue #1; UST 10yr at 1.35%; oil and gold up; NZ$1 = 73.3 USc; TWI-5 = 74.3

US data positive, mortgage rates rise; German business sentiment up; ECB worries about rising rates; China declares food security issue #1; UST 10yr at 1.35%; oil and gold up; NZ$1 = 73.3 USc; TWI-5 = 74.3

Here's our summary of key economic events overnight that affect New Zealand, with news the economic tide seems to be rising, and so do interest rates.

There hasn't been any first tier economic data out in the US overnight but the second tier data has been notably positive. The Chicago Fed's National Activity Index was up to a three-month high in January. And the Dallas Fed's regional factory survey was also positive, even if it was taken before the recent arctic storm. A sharp rise in new orders was a standout feature.

American mortgage rates are turning higher in the wake of the sharp rise recently in benchmark bond yields.

In Canada, a minor policy dispute has erupted over how they have changed how they measure 'core inflation', resulting in a backtrack by their statistics agency and upward revisions in core CPI.

Across the Atlantic, they are worried about those benchmark interest rate increases.

All the same, the German IFO business sentiment survey improved by much more than expected in their February edition perhaps suggesting the ECB will have a hard time keeping its policy rates low.

In Beijing, that are pushing ahead with 'reforms' for Hong Kong to ensure "only patriots" hold office in all three branches of government - the executive, legislature and judiciary - as well as their statutory bodies. There will be no place for any democracy. Hong Kong has become just another Chinese city, and no longer deserves its special status in international affairs.

In China, mortgage rates are turning higher there too.

Meanwhile, Beijing remains focused on its food security issues. Its upcoming Communist Party meeting to adopt a new five-year plan places food security as issue number one.

The wobble in the iron ore price was short-lived with prices trending higher yesterday. But other mineral prices like copper are stealing the limelight with rises for tin, nickel, lithium and zinc also in an upward trend.

Wall Street has opened lower, with the S&P500 down by -0.6% in early afternoon trade. Overnight European markets slipped by about -0.2%. Yesterday the very large Tokyo market rose by +0.5% but it wasn't matched by either Hong Kong (-1.1%) or Shanghai (-1.5%). The ASX200 fell -0.2% yesterday and the NZX50 Capital Index ended its session down a full -1.00%.

The latest global compilation of COVID-19 data is here. The global tally is still rising but at a little-changed pace, now at 111,556,000 and up +352,000 in one day. But it seems to be easing in some notable places in the first world. Global deaths reported now exceed 2,469,000 and +6,000 since yesterday.

More countries (104) have started their vaccination programs. About 208.3 mln doses have been given so far (+3.5 mln in the past day). There is clear evidence the vaccines are working to reduce or even eliminate deaths for those who have taken it.

The largest number of reported cases globally are still in the US, which rose +56,000 over the past day for their tally to reach 28,770,000. The US remains the global epicentre of the virus although there is clearly an easing there. But the number of active cases fell overnight and is now just on 9,284,000 and +20,000 fewer overnight, so more recoveries that new infections again. Their death total is rising at a much slower rate and is up at 511,000 (+1000) in one day. The US now has a COVID death rate of 1539/mln, and that compares to the disastrous UK level (1773) where deaths are also still rising a bit more slowly now their vaccinations are rolling out.

In Australia, their community control remains impressive. Their all-time cases reported is now 28,930 and only +4 more case overnight, but with no new cases in the community and the rest new arrivals, and all in managed isolation. 40 of these cases are 'active' (+1). Reported deaths are unchanged at 909.

The UST 10yr yield is up +1 bp at 1.35% today from yesterday and near a new yearly high, although it did reach 1.39% within the past 24 hours. Their 2-10 rate curve is a little steeper at 124 bps and holding high. Their 1-5 curve is also steeper at +53 bps, while their 3m-10 year curve is steeper as well at +133 bps. The Australian Govt 10 year yield is up a sharp +13 bps at 1.63%. The China Govt 10 year yield is softer by -1 bp at 3.29%, but the New Zealand Govt 10 year yield is also up +13 bps at just on 1.65%.

The price of gold will start today up +US$27 at US$1812/oz. Silver is rising even faster with the gold/silver ratio just on 65:1 and now near a seven year low. It was at an all-time high one year ago, so the rise in the silver price has been dramatic.

Oil prices are up by about +US$2 and are now at just on US$61/bbl in the US, while the international price is just under US$64/bbl.

And the Kiwi dollar opens at 73.3 USc as commodity currencies twist back into favour, aided in our case by the credit rating upgrade. Against the Australian dollar we are at 92.6 AUc. Against the euro we are still up at 60.3 euro cents. That means our TWI-5 has held at just over 74.3.

The bitcoin price is now at US$53,528 and -7.2% lower than this time yesterday. It is now well off the record it set about 24 hours ago of US$58,832. Volatility has been extreme at +/- 11.6%. The bitcoin rate is charted in the exchange rate set below.

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72 Comments

33
up

This bond rout is very painful for those of us sheltering in bonds from kaput term deposits. I can't see any respite in it: RBNZ have the FLP facility to ensure banks can get and pass on low interest rates on their lending, meaning they don't have to increase deposit rates, so prudent savers simply get hung out to dry again.

The risk averse (prudent) only have the prospect of negative returns on term deposits which won't get any better as we see this huge pressure on yields which are since the New Year now destroying our capital savings in bond funds.

And where do you go now NZX is flat lining and shares are set for correction worldwide. Pension funds must be getting whacked.

Another house I suppose. Monetary policy has broken financial markets.

Be patient with cash in the bank, when every thing tips over there will be bargains to be had.
Warren Buffett has over $140 billion in cash.
https://www.cnbc.com/2021/01/08/how-warren-buffetts-uphill-battle-agains...

10
up

Until the OBR takes a portion of your pie...criminal really

OBR?
What's the first thing a failing bank will do? The same as any distressed business = Call in its debts to meet the creditors' demands.
And where are those debts substantially warehoused?
Mortgages.
So what do we think will happen if, say, ANZ calls in its mortgage book to meet creditor demands? Do we think mortgage rates, for those that can refinance elsewhere, will fall? Do we think other banks will keep extending credit? How much will your house be 'worth' if no one can borrow to buy it?

Financial Repression worked 70 years ago; when the global population was 2.5 billion and manual labour powered most endeavours; able to flex their wage rate muscles to 'inflate the debt away'. It can't and won't work today - not with 7.5 billion of us, mostly using technology as 'work'.

Mark writes "Monetary policy has broken financial markets."
I'll suggest we did that all on our own. We all made ourselves 'rich' on paper and not in practice, and Monetary Policy i just the manifestation of that.

No, monetary stimulunacy incentivised certain behaviours: that was it's hubristic purpose.

And it now brings down the Western economies.

10
up

It's getting very hard to quantify the real value of fiat. People at the pointy end of retirement have a hell of a job trying to manage their assets right now. Cash is caught between the rock of QE and the hard place of low interest returns. Meanwhile the value is potentially being inflated to infinity by MMT (although very hard to know exactly as the only control outside of market influence is crypto, which is too young to be trusted). Surely this sort of environment makes a good argument for at the very least upping the allocation of gold hedging in a portfolio from 5-10% to 10-15%?

Yes, I've been buying physical gold via Pax Gold (PAXG) ... best use of tokenisation.

We all did that 40 years ago! 1980, when gold first 'went to the Moon'.
Look at the Gold graphs from that era and look at Bitcoin today. You may notice a similarity.
And what happened to Gold?. It eventually plummeted. Those who saw it as a safe haven bought it - all the way down. A similar fate likely awaits Bitcoin.

Like Mark, I see current Monetary Policy as lunacy. But it's what we have to work with. It will change. The question is "To what and when?"
We all have our own ideas - that's what makes markets - but if there is going to be one survivor in a planet of 7.5 billion people that stops us tearing ourselves apart again (War. The traditional way of expunging debts) it will be..... cash.

But which cash? USD, NZD, Digital Yuan, Shells, Rai Stones, or Something else. Cash is king, but not all currencies are equal and there's increasing evidence monetary policy of some Central Banks may not work out as intended. My number one priority is preserving my purchasing power first, and liquidity second, as there's going to be good opportunity in the next 5 years for people with liquid assets. But what will the value of any given currency be then? Hell, will the global reserve still even be the USD by then? There's more questions than there are answers RN bw, and making huge paper gains is a fools errand because its only when profit/loss is crystalised that the rubber hits the road.

Venezuelan Bolivars might hold their value of about zero through these tumultuous times.

Link below relevant to this thread from Lyn Alden today related to US Fed. Maintaining the purchasing power of the USD isn't even on the Fed agenda.

In this first half of 2021, there are two big fiscal/monetary forces to be aware of on each hand.

On one hand, if fiscal policymakers pass another aid package in March and the Treasury Department draws down its Treasury General Account, that would add a lot of liquidity to the system and should be beneficial for risk assets.

On the other hand, if long-duration Treasury yields continue to rise due to normalizing or accelerating inflation levels, that can put a lot of pressure on highly-valued growth stocks, risk parity funds, and other parts of the financial market.

In terms of equities here, it's important to know what you own, why you own it, and what you think it's worth in terms of long-term free cash flow generation potential with appropriate discount rates.

https://seekingalpha.com/article/4407906-treasury-yield-stress-point

"But which cash?"

The one backed by force

The largest armies in the world aren't going to be able to stop the financial fallout from MMT/QE. I'm sure they'll be put into use after the fact, but the biggest problem will be funding them. Countries that pursued monetary policy heavy on QE will likely be completely tapped out by the time it comes to financing the conflicts that follow. If existing government bonds gain junk status (and let's be honest there's no way the US Govt will ever be able to repay $30T), then how attractive will war bonds be? And then where to from there? Well history is a good lens to look into the future. Just ask yourself what happens when a cash strapped government that needs to finance a war identifies their comparatively wealthy citizens and their assets. It's not a pretty picture - where do you think all the Nazi gold came from? The only way to escape that would be to store all your wealth in a non-custodial fashion in a place only you had access to. Thankfully that solution now exists for the first time in human history.

Poor man’s gold is the place to be..far more upside

Yeah I agree, cash in the bank. For now....

Yes, that's my other reservoir. I'm still getting just over 2% gross in Harbour's Enhanced Cash Fund ... although that return is dropping. Hopeless.

"Be patient with cash in the bank, when every thing tips over there will be bargains to be had.
Warren Buffett has over $140 billion in cash"

Bascially the Pie is now getting far smaller.
the net result is MORE & MORE consumers / people out on the fringe and weak demand
Economies to scale doesnt do backwards
So hoover up all the wealth claims on a brighter future you can ... BUT If the future is continually smaller, nothing is a bargain

No, physical limits have broken exponential growth.

It just manifests that way to you, somewhat remotely. We once could trace your bets to real activity; real resources extracted/processed/consumed/disposed-of. Increasingly, we can't. So increasingly, we've bet on increasing the value of existing items (old resources and past-used energy). Or on virtual representations of real activities.

As to the cash-in-bank comments - that presumes banks outlast the readjustment.....

This is just a reconciliation phase. With pretensions re permanency.

NZ 10yr went up 13 bps yesterday, and even on the opening today up another 5 bps.

Bonds are simply getting slaughtered in this relentless rout, while the FLP means no hope of deposit rate increases.

This is criminal behaviour from RBNZ against the elderly. No other way to describe immorality on this scale.

Mark, I totally agree with you. I have friends from all walks of life (mainly retirees) - some are doing ok as they purchased rentals, etc, however, the vast majority are just hanging on. A number of our friends purchased larger, family homes and have paid them off, thinking that just before retirement they would down-size, in order to put their money into TDs (topping up their super). A good friend told me the other day that although he wasn't rich, he went into retirement with the idea that he had enough in TDs in the bank to help pay his private insurance for he and his wife. I had to look away from his face as I could see the incredible hurt in his eyes when he went on to say that he would now, after all these years, have to cancel his policy. Most people think of retirees as boomers with investment properties, however, there are a lot of them out there who are struggling now as they can no longer supplement their super to cover ever increasing costs of water, rates, insurance, electricity, groceries, dental, etc.

Absolutely Edward. Elderly poverty is a real thing and increasing thanks to every monetary policy being practiced by RBNZ. It's the one group in society that does not have the time or opportunity to change course: they're simply buggered. I wish those staffers and Adrian Orr on their big salaries would read threads like this because they couldn't have chosen better policy settings to destroy the economic lives of the elderly.

Nope
they have had a dream run
the ones you should feel sorry for are the school leavers & below.... their future is literally going up in smoke
who cares about some oldies who have lived like kings for three quarters of a century ... besides EVERYTHING is being done to preserve their (fake) wealth on the way out ... but the future just cant deliver on the leverage (promises) that they have dined on

Perhaps get out and meet some old people. Many in rest homes now have sold their homes a long time ago, but have little income to live on anymore. Many elderly actually never owned their own home and still rent (financial planners spent the last 30 years telling people they were better not to buy a home but invest in funds that got wiped out 2008, and they've not recovered coz they never went back in - as who would have ever understood the stimulunacy coming down the pike from then).

I'm not saying all. I'm just saying elderly poverty is a growing problem and it's largely been made by monetary policy.

These issues are complicated and don't lend well to generational generalisations.

Alongside that is the often overlooked fact that the elderly who end up in geriatric hospital care will contribute virtually all their own equity as payment for that care. That means the government accesses those funds first but for those without any money the government pays the lot for them from day one. So given that many retirees are presently having to dip into capital/savings at an unexpectedly high level, that means that the ratio of those that will require government funding, will inevitably increase.

Too late to wind the clock back now
Remember they have dined on Leverage & Debt growth for 40 years ... all promises which come with a tab payable down the line

So I dont need to meet any to KNOW they had literally had a dream ride compared with the ride thats coming for school leavers & below
They are literally looking at NO future prospects & decimated living standards

You cannot generalise like this. There are many opportunities out there for the young that never existed in my day. They probably have to get off social media to find them, however (if we are to generalise).

But I'm not interested in your generational war. It gets neither of us anywhere.

Mark, your thinking reflects a "monetary " view of the economy... one that ignores resource drawdow and limits. It's what we've been sucked into believing... otherwise exponential growth isn't possible
Every bit of resource sucked by a retiree directly takes from generations to come ,...

Bullshit.

Your post connects with nothing I have said.

I wrote yesterday, that platforms we use, as of the weekend have stopped the opening new positions in crypto This remains the case today. I wrote " Unless they can flush out sellers legitimately or by price spikes(crashes)", clearly was in issue overnight. Unfortunately , for many retail traders, either without deep pockets or without considerable positioning, would have seen their positions closed overnight and losses/ gains crystallized.

Yep, was a good dump! got rekt on a few trades, but thats the fun part of playing with margin right. Only a very small portion of my overall portfolio though.
Kraken had a massive swing in prices, Eth went from 1900 down to 700, obviously destroying anyone wiht a stop loss or liquidation price.
Cardano also went from $1 to .16c and then back to $1.
Still only a 10% dip, would love it do another 30% drop back to 40k. Now that would be a place to BTFD

Tried to get back on board with Cardano this morning and fill my boots, but payments are very slow to be processed at the moment and I've probably missed the boat on the cheap stuff. Still, not the worst thing I could be stuck with.

Good trade window right now alright. Scale is starting to show the fragility of a lot of the incumbents, as you point out with ADA. Over the last couple of weeks I've diversified heavily out of ETH into ATOM, ADA, DOT and ONE. It doesn't look like ETHs gas fee problem is going away any time soon, and the space is moving so fast the fundamentals of many competitor and second layer solutions is looking increasingly promising. Huge risk in these areas, but potential for huge return also. Definitely not investing amounts that I can't afford to lose outright, but it's surreal being early enough to hold solid positions on tokens for peanuts when they're yet to go through proper price discovery. If you've been following ETH alumni Gavin Wood and DOT's journey the whole space is wide open.

Do you think there will price discoveries like that of BTC's magnitude?

Yes. Blockchain is web 3.0. Vitalik Buterin's vision of Ethereum 2.0 Beacon Chain is as a 'World Computer' - one single decentralised machine. He's publicly stated that ETH v1 was a messy attempt, but plenty of crypto developers have picked up his vision and started progressing it. It's essentially a play at democratising the internet. In this light, any part of the web/finance currently that facilitates a monetary transaction that is centralised is up for grabs. Everything from clicking ads, to facilitating online subscriptions will be handled by blockchain, and quite probably sooner than we think (5-10 years). It makes it easier IME to evaluate crypto projects when you're looking through the lens of "how does this replace a part of the web?" From there look at the market cap of any particular industry, measure that against the circulating supply of the promising blockchain projects challenging that space, and you've got your rough idea of potential value.

As an example take the global online advertising industry worth roughly $319 billion in 2019 and projected to double by 2025. There's several tokens vying to be the next advertising platform of choice in this space, and with a proof of stake model it makes sense that whatever revenue is allocated to that industry will flow through staking to holders providing liquidity, as well as the actual people viewing the ads. Draw your own conclusions.

We're still in the innovator stage of the tech adoption curve for most of these products right now, and any holding of more than 1000 tokens will make you a future whale just like BTC. Just be prepared for 95% of your picks to be wrong and go to 0.

In a nutshell, that’s how I kind of made sense of each different crypto project. Try to understand what that particular problem that project is trying to solve or improve and then decide if it’s got long term viability. Although my knowledge is extremely basic

Are you staking at all GV?

Getting VTHO on my small VET holding, staking my ADA through one of my other wallets for 4.2%. I'm not playing for keeps, more 'pay my student loan back' territory as opposed to 'pay my mortgage off' so staking isn't a game-changer for me really.

Hong Kong has become just another Chinese city, and no longer deserves its special status in international affairs.
Nonetheless global soft power is on the rise
China and Russia rewrite ‘global health order’ with their Covid-19 vaccines as West struggles to spread its aid & influence

End of democracy pretence for Hong Kong, but worth remembering that Britain's enthusiasm for that democracy became manifest only as it prepared to depart. The people of Hong Kong are back where they were before, say, 1984: only the boss has changed.
https://www.breitbart.com/asia/2020/12/15/chinese-foreign-ministry-hong-...
https://en.wikipedia.org/wiki/Democratic_development_in_Hong_Kong

I was there quite a bit in the 70/80s on business. Astonishing ability to build an economy basically making money out of money. Undoubtedly then one of the most vibrant cities in the world, decadent too. Had quite a bit of contact with British ex pat types, almost a throw back to the colonial black sheep characters Somerset Maugham wrote about. You could detect the diffidence and resignation mounting amongst them as the day of reckoning approached. Return to the motherland not an inviting prospect.

Did ya run into Howard Marks by any chance (the British dope smuggler who spent a lot of time soaking up the decadence in HK)?

Doubt it. But recall at a meeting that race course in the New Territories in the Jockey Club, meeting a Chinese gentleman, Saville Row suit, impeccable Oxford accent whose line of business was in his words the three “Hs”hotels,horses and hookers. Well courtesy of him I made a tidy sum out of the first race. You see Lester Piggott was a guest jockey and my newfound friend said it was only hospitable that he should win his first ride.

Britain apparently encouraged unworthy banking behaviour patterns in Hong Kong - HSBC escaped US money-laundering charges after Osborne's intervention

International tourism provides a significant source of foreign currency, NZD buying. Remarkable that during the seasonal period where net international tourism would normally be at its peak , their is a relentless rise in the Kiwi, with no tourism.

Turns out the real economy pales in comparison to various bulk financial flows.

Surprised no one mentioning the BTC drop overnight....sky not falling?

16
up

An 8% drop would be called a bloodbath if it was on the NZX. In Bitcoin we just call it Tuesday.

Its still up 13% for the week, even with the dip.

Nice 10% dip, see my comment above about some of my margin trades getting rekt.
Still, What is this?? a dip for ants? 10% is nothing
Would love a drop to 40k

People just BTFD. As Galleoleoleoleus says - kind of waiting around for a nice correction, but ... I guess today is not that day....

Further to mine above:

Automation set to gut 1.5m jobs from Australian economy

https://www.afr.com/technology/automation-set-to-gut-1-5m-jobs-from-aust...

There's no way that Financial Repression can ultimately work. Yet our Government and the RBNZ still cling to that false hope.
They need to get us ready for what's coming (Mark's - The End of Western Civilisation, stuff!) and lower asset price are versus what-jobs-are-still-available (fewer wages going into servicing debt principal reduction; more going into the other necessities of life) is part of the answer.

... Yellen offered up the amusing notion that debt interest payments are a better metric than debt to GDP. We wonder if this is because one metric is absolutely terrifying....while the other is directly controlled by the Fed and is currently at artificially all time lows. Link

Yellen is visibly transparent and it's getting increasingly harder for her to peddle the FED's monetary policy without looking like a complete shill. Her recent comments on bitcoin are laughable, and its easy to see from her rhetoric how much pressure the crypto space is starting to put on the FED's monetary policy.

This was a great comment on twitter from Robert Kiyosaki a few days ago:

"Sec Treasury Yellen just said on CNBC Bitcoin is used in criminal activity. Give me a break. And the US dollar isn’t. Who can believe these Academic Elites? Do they think we are that naive? Definitely buy more gold, silver, Bitcoin."

The pandemic has had a depressing effect on fertility.
New Zealand has effectively no COVID.
But the island nation has still seen its birthrate sink to its lowest level in history.
https://www.theguardian.com/world/2021/feb/18/new-zealand-birthrate-sink...
Link

No problem. Let's set the right priorities. Use QE to pay a baby bonus of, say USD 300,000 per baby. Productive credit creation. As long as you also invest in education, the best investment. Non-inflationary. Fertility will shoot through the roof. Pension systems will be fine.
Link

Give us a house and we'll have a baby. As it stands, there's no way for a couple on average incomes to breed without falling into poverty (unless they have generous parental support).

Indeed, the role of massive housing costs in low fertility should be obvious to any regulator with half a brain. Middle class couples cannot afford to raise families when they're being bled dry for NZ's property investor welfare scheme.

Bugger, our regulators have tied their brain capacity to OCR

Its time people stopped having kids anyway for the sake of the planet. Sooner or later it will happen anyway so its much better to do it in a controlled manner.

I always find the use of “Fertility” as silly to describe the “Birth” rate. Woman are not less fertile they just chose to have less children which given the so called climate emergency is the proper thing to do.

Looking to fix a small loan this morning, I rang ASB (after 2 weeks of non-response to my query through Internet Banking) and couldn't get any discount off advertised rates, even with a decent threat to take all my loans elsewhere. I have a reasonable amount of business with them, diversified solid income, and more than enough assets for security.

Either they think the prospect of repaying the $9K sign-on sweetener they gave me 18 months ago is enough to hold me (it's not, another bank would likely pay to have my business) or they're not feeling the continual rates drop any more. Or maybe the person I spoke to just didn't have the authority/fortitude to offer the discount. I'm beginning to think 2.99% for 5 years is a reasonable option.

Anyone else tried lately?

My mortgage is coming up for re-fix in March, in my case Westpac. They have had an option to re-fix through online banking available for the ast 6 weeks but that disappeared on the weekend.
Wondering if it's just a short term change until the next OCR announcement or if there is possibly a change in outlook on the cards in the near future

I've seen 2.5% on very solid rural lending, however I think that has passed and now unlikely to be sub 3%

I haven't tried but this is what Tony Alexander basically indicated, that 2.99 x 5 years is about as good as it gets and to seriously consider fixing now.

Note to self.... ignore government data. Speak to people on the ground, it’s a very different story for many in the US.

Is demand for short end pristine near cash collateral excessive? A definite liquidity preference is evident.
Daily Treasury Bill Rates Data
Secured Overnight Financing Rate Data
Federal Funds Data
In contrast: interest on excess reserves is set by the Fed at 0.10% - the so called short end interest rate floor other than the Fed RRP absolute backstop set at 0.0%.

Unfortunate to hear those spiffing Germans have not managed their vaccination program well and now have rising cases again just as they intend to start sending children back to school. It appears to have triggered a wave of soul searching and the fear of a third wave: https://www.thelocal.de/20210222/opinion-how-the-covid-19-vaccine-fiasco...

Anyone heard anything about our own yet? One has to believe that if the Germans could mismanage this so could we.

Germany will have to deflect geo-political preferences and authorise the use of the Russian vaccine:
Link 1
Link 2