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A review of things you need to know before you go home on Monday; some smaller rates changes, housing and new car market strength surprises, Hatch hived off, FOMO is not a strategy, swaps and NZD stable, & more

A review of things you need to know before you go home on Monday; some smaller rates changes, housing and new car market strength surprises, Hatch hived off, FOMO is not a strategy, swaps and NZD stable, & more

Here are the key things you need to know before you leave work today.

MORTGAGE RATE CHANGES
SBS Bank raised most of its fixed rates today.

TERM DEPOSIT RATE CHANGES
None here either.

'LOWER RATE' TEMPORARILY
ANZ has dropped its personal loan interest rate from 12.90% to 9.95% for an unsecured loan, and is currently waiving the $115 application fee. The rate applies to the end of October, 2021. The loan amount can be between $3000 and $40,000, and for terms between six months and seven years. (When you get the final quote from ANZ, enter the numbers that apply to you in this calculator to see the 'real cost' of this debt.)

SURPRISE STRENGTH I
Spring is in the air at Barfoot & Thompson's Auckland house auctions as market starts to shake off the lockdown blues. There was a big jump in activity last week with more than three quarters selling under the hammer. We expect Barfoot's will report their September sales tomorrow morning.

SURPRISE STRENGTH II
September car sales were also surprisingly strong. There were 11,891 new passenger car registrations in September, the most new car registrations in a single month on record (beating October 2018's 11,767). It was boosted by 1204 vehicles sold to rental car companies. And there were 1640 electric vehicles sold in the month, 14% and a new high for this class.

SHUFFLING POSITIONS
Last week the NZX50 ended virtually unchanged from the prior week, which in the circumstances of large fall almost everywhere else was a very credible result. The largest gains were A2 Milk (ATM, #10), Synlait Milk (SML, #50) and Tourism Holdings (THL, #49), which went up +12.1%, +12.7% and +9.9% respectively. A2 Milk is now back in 10th place overtaking EBOS (EBO, #11) once more. Synlait remains at the bottom. Largest fall was by Sky Network Television (SKT, #) which fell -6.4%.

GREENWASHING MORE DEBT
Auckland Council is about to issue a new six year Green Bond, its fourth such issue (after a $200 mln June 2018 one, a $150 mln July 2019 one, and a $500 mln September 2020 one).

HATCH SOLD TO OFFSHORE BUYERS
Kiwi Wealth's Hatch platform has been sold. Hatch is a ‘direct-to-consumer’ digital investment platform that provides access to the US share markets. It has over 130,000 users and more than $2 bln has been transacted on the platform since it was founded in 2018. The buyer is FNZ, the global wealth management behemoth based in Scotland (but long ago was founded in Wellington). No price was disclosed.

FOMO IS NOT A PROPER STRATEGY
Recent research by the FMA into online investing platforms found 31% of all online DIY investors jumped into an investment in the last two years because they didn’t want to miss out. Additionally, 27% said they invested based on a recommendation from someone they know without doing their own research. Now the FMA is running a campaign to tell people FOMO is not a proper basis for investing.

The RBNZ's Annual Report has been released and it reveals that the central bank paid a $140 mln dividend to the Crown as owner of the Bank. This is a little odd because in the 2019/20 they paid no dividend and yet made a +$371 mln tax-paid profit. This year they booked a -$107 mln loss, yet paid the dividend. Over two years, perhaps it makes more sense. In 2019/20 the paid interest of $179 mln on total average liabilities of 38.5 bln. This year they paid interest of $431 mln on average liabilities of $67.1 bln. It is yet another regulator sharply expanding its Auckland base.

NEW CHIEF OPERATING OFFICER FOR HEARTLAND
Heartland Group Holdings says Mike Grenfell will be its chief operating officer from November 8, subject to Reserve Bank confirmation. Grenfell succeeds the departing Laura Byrne. He has previously worked at the Automobile Association including as chief information officer, and Cigna Life Insurance.

THE END IS NIGH?
In Hong Kong, Evergrande has been placed in a trading halt on the HKSE. The whole Evergrande Group as liabilities exceeding US$380 bln - that we know about. It is a good time to clean up this mess while the rest of China is distracted in their Golden Week holiday. But many investors won't be feeling very 'golden' now - less so it you are an offshore investor.

PLEASE, TAKE THEM
In Australia, CBA went to the market to buy back AU$6 bln worth of its shares (thereby pumping up the results for the remainder). But investors offered them AU$24 bln, requiring a drastic scaling.

CO-OPTING PREMISES CONTROL
In NSW, business owners will face fines of up to AU$5000 if they do not take “reasonable measures” to stop unvaccinated people entering their premises. Also, watch for the infection echo among the unvaxxed from the NRL Finals parties last night. (It is a Labor Day holiday in parts of Australia today, although the ASX is open.)

PANDEMIC PRESSURE SHIFTS
Staying in Australia, there has been an explosion of Delta cases in Victoria with 1377 cases reported there today and more than 12,711 active cases in the state. In NSW there were another 623 new community cases in NSW reported today with another 480 not assigned to known clusters. They now have 9,020 active locally acquired cases which is lower, but they had 6 daily death toll yesterday. Queensland is now reporting zero new cases. The ACT has 28 new cases. Overall in Australia, more than 57% of eligible Aussies are fully vaccinated, plus 23% have now had one shot so far. There were two new cases in New Zealand at the border, and 29 more in the community. So far, 48% of eligible Kiwis now have both shots, another 31% the initial shot. So far the New Zealand vaccination effort is faltering slightly (79.1% of Kiwis and rising more slowly) and the Australian is gaining new momentum with theirs now up at 79.4%.

GOLD HOLDS
Compared to where we were this morning, the gold price is still at US$1761/oz in early Asian trade.

EQUITIES A SEA OF RED
The NZX50 is adding to last week's rise, up another +0.3% in late trade today. The ASX200 has recovered +0.8% after last week's large retreat. Shanghai is still closed for Golden Week, and will be until Friday. The very large Tokyo market has opened this week's trading with a -1.1% loss. Hong Kong is trading and has booked an opening drop of -2.7% (and Evergrande won't be helping).

SWAP & BONDS RATES SOFT
We don't have today's closing swap rates yet. They probably steepened again. We will update this if there are significantly different changes when the end-of-day data comes through. The 90 day bank bill rate is down -2 bps at 0.61%. The Australian Govt ten year benchmark rate is now at 1.48% and down -1 bps from this time Saturday. The China Govt 10yr is now at 2.89% and unchanged. The New Zealand Govt 10 year rate is now at 2.00%, down -2 bps, and now below the earlier RBNZ fix for that rate at 2.01% (+2 bps). The US Govt ten year is now at 1.46% and down -2 bps from this time this time Saturday.

NZ DOLLAR LITTLE-CHANGED
The Kiwi dollar is now back up to 69 USc. Against the Aussie we are lower at 95.4 AUc and down another -40 bps. Against the euro we are firm at 59.6 euro cents. The TWI-5 is now just on 72.8, and back in the middle of the 72-74 range we have been in for most of the past eleven months.


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BITCOIN HOLDS
The bitcoin price is now at US$47,813 and up a minor +0.6% above where we were when we opened this morning. Volatility in the past 24 hours has been modest at just under +/- 1.7%.

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Keep ahead of upcoming events by following our Economic Calendar here ».

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18 Comments

In Australia, CBA went to the market to buy back AU$6 bln worth of its shares (thereby pumping up the results for the remainder). But investors offered them AU$24 bln, requiring a drastic scaling.

Investors invoking the self interest factor of the "invisible hand".

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Yep = otherwise known as a bunch of lemmings climbing onto the tram, because a whole lot of others climbed onto the tram, because......

Invisible brain, more like it. We are now down to rentiers renting paper from rentiers; gotta end well.

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Michael: Well, I certainly appreciated the book that you published on the accumulation of wealth, and how it’s concentrated in the hands of the 1%. I think everybody knew intuitively that this was the case, but economists being who they are, they don’t really accept something until it’s all there in statistics. You did just a wonderful job in tying together all of these statistics, and showing how the degree to which wealth the 1% have concentrated wealth in every country.

You also made what I think is the most important point, where you said, “What’s caused this?” You came up with the broad answer that I agree with. You said that financial returns exceed the overall rate of growth, and if financial returns exceed the overall rate of growth, of course, you’re going to have the rich getting richer and richer. The reason where we have a different approach is, how do you explain all of this?

Well, when your book came out, a number of writers said, “Well, this is the Marx of the 20th century.” You showed that there was an abrupt turning point in 1980 and everything changed. I think the 1% looked at your statistics as a success story. They said, “Yes, we’re really doing better than everybody else.” The head of Goldman Sachs said, “That’s because we’re so productive” – at making money, that is.

I think the reason your book was praised so much in the West is that you didn’t come up with a threatening political solution. When they said, “This was the Marx book, the Marx of modern times.” That meant “Don’t read Marx, read this book.” I suspect that after you put all of this enormous good work into the statistics that you did on wealth and income, I think the publisher probably said, “Well, what are your solutions?”

Well, you just came up with the solution that you said in the book: to tax income and wealth. This is not a threatening solution because there’s no way that you’re going to tax wealth, as long as you have offshore banking centers to conceal wealth. As long as you have what the oil industry put in place a 100 years ago, the flags of convenience pretending to make their income abroad in zero-tax enclaves.

The fact is, the 1% don’t really make much income. Their ideal, if you’re a billionaire, you want to do what half of American corporations do: You don’t make [00:15:30] a penny of taxable income. That’s the problem. I want to go into what your book was not about. I’m not criticizing you for not writing a different book, but it’s what I write about: what is it that has created this wealth and income disparity, and why has it widened so much since 1980?

The most obvious reason is that interest rates reached a peak of 20% in 1980, and they’ve gone down ever since. In the late 1970s my old boss’s boss at Chase Manhattan, Paul Volcker said, “Let’s raise interest rates very high, because the 99% are getting too much income. Their wages are going up. Let’s raise interest to slow the economy, and that will prevent wages from going up.” He did, and that was a large reason why Carter lost the election to Ronald Reagan.

Interest rates went down from 20% to almost 0% today. The result was the largest bond market boom in history. Bonds went way up in price. The economy was flooded with bank credit, and most of this credit, apart from going into the bond market, went into real estate. There is a symbiosis between finance and real estate, and also between finance and raw materials like oil and gas and minerals extraction, natural resource rent, land rent, and also monopoly rent.

Most of the monopoly rent has come from the privatization that you had from Ronald Reagan, Margaret Thatcher, and the whole neoliberalism. If you look at how did this 1% get most of this wealth? Well, if you look at the Forbes list of the billionaires in almost every country, they got wealth in the old-fashioned way: from taking it from the public domain. In other words, privatization.

You have the largest privatization and transfer of wealth from the public sector to the private sector in history, and specifically selloffs to the financial sector. And all of a sudden, instead of infrastructure, public health, other basic needs being provided at subsidized rates to the population, you have a privatized owners financed by the banks, raising the prices they charge to whatever they can get, without any market borrowing power.

In the United States, the government is not even allowed to bargain with the pharmaceutical companies for the drug prices. There’s been a huge monopolization, a huge privatization, a huge flooding of the economy with credit, and one person’s credit is somebody else’s debt. You’ve described the 1% wealth in the form of savings, but I focus on the other side of the balance sheet. This 1% finds its counterpart in the debts of the 99%.

The 1% have got wealthy by indebting the 99% for housing that has soared in price, 20% just in the last year in the United States, and also for medical care, utilities and education. The economy has been forced increasingly into debt just to function without wages and living standards rising.

How can one solve this? Taxation will not be enough. The only way that you can actually reverse this concentration of wealth is to begin wiping out the debt. If you leave the debt in place of the 99%, then you’re going to leave the 1% savings all in place. These savings are largely tax-exempt. Basically, I think you’ve left out the government’s role in this wealth creation of the 1%. Finance has indeed grown faster than the economy, and finance and real estate have merged into the Finance, Insurance and Real Estate sector, the FIRE sector.

High finance has absorbed the oil industry, the mining industry, and it’s absorbed most of the government. Financial wealth has become the economy’s central planner. It’s not planned in Washington or Paris or London. It’s planned in Wall Street, the City of London and the Paris Bourse. The economy is being managed financially, and the object of financial management is to make capital gains.

As your statistics point out, capital gains are really what explains [00:20:30] the increase in wealth. You don’t get rich by saving out of earnings and income. Rent is for paying interest. Income is for paying interest. You get rich off the government subsidizing an enormous increase in the value of stocks and bonds by the central banks.

The reason that inequality is occurring is that the largest public utility of all, money creation and banking, is left in private hands. Privatized banking in the West is very different from what government banking is in say, China. Government banking would create credit for public uses, for what the economy needs to grow. In the United States and throughout the West, banks create credit to slow the economy from growing, they make loans not to create new means of production and new factories. They make loans against property already in place – mainly to buy real estate already in place. Some 80% of bank loans in America and Europe are for real estate.

Banks make loans for corporate takeovers to buy other companies. They don’t make loans to build new factories, which is what government money creation in China would do. As long as you leave banking and credit in private hands, you’re going to have banks creating their product: debt. The more debt they create, the more debt service that borrowers, the 99%, have to pay the banks in order to obtain a house. or an education. or medical care, or just to break even.

The more money they pay the financial sector, the less they have to pay for goods and services. As the economy polarizes between the 1% and the 99%, the economy as a whole, shrinks, because more and more of its income is spent not on production and consumption, it’s spent just on debt service. My solution is to restore banking and credit to public hands to prevent the lending that simply finances asset-price inflation.

Second, you talked about taxing. Some taxes are more important than others. As long as the banks and the financial sector write the tax codes, as long as the government lawmakers are basically employees of the financial sector that finances their political campaigns, you’re not going to be able to tax them, or to close down the fictitious transfer pricing that corporations use to pretend not to make money except in artificial enclaves without an income tax.

You have to tax the source of the money that pays interest to the banks. That source is mainly economic rent. It’s primarily land rent. If you would tax on the increase in land values, if you’d have a land tax, which is what the whole 19th century was about – Adam Smith, John Stuart Mill and even Marx. You would not have this increased rent being paid to the financial sector to be monopolized by the 1%.

You’d have to change the way in which the tax code is based, away from earned income and wealth. But that is really not very practical in today’s political situation. You’d have to have a land tax and a natural resource tax to get rid of monopoly rent. You also have to return basic key infrastructure to the public domain, where it was before 1980, so that basic needs can be supplied at low prices, not creating monopoly rent for the 1%.

You have to realize that financiers use this wealth to take over the economy. This has to be reversed, because once you have wealth taking the form of financial claims and loans to other people as debt, you have compound interest. Any rate of interest is a doubling time, and compound interest is always going to grow faster than the economy’s real growth. The way to prevent this isn’t simply to lower the interest rate, which has been done today, to 0.1%. The only solution is to wipe out the overall debts that are stopping economic growth  Link

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That longish extract, on a balmy Monday evening, should be compulsory reading for any and all posters and commentators on this, and any and all, other such sites.

Thx again for the snapshot of everything that plagues our social and economic systems.

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Agree - superb.

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Thanks bw and HM..

This news is disconcerting:

MOSCOW, October 3. /TASS/. Russian Foreign Ministry spokeswoman Maria Zakharova pointed out Washington’s plans to make fighting corruption a key national security task, commenting on the publication of the Pandora Papers - a massive leak of millions of documents about offshore bank accounts of world’s lead politicians and celebrities.

"On June 4, 2021, US President Joe Biden announced the publication of a National Security Study Memorandum on the Fight Against Corruption to establish combatting corruption as a core US national security interest. That’s what he said. Today, according to The Guardian, the ICIJ investigation named the US as the largest tax haven," Zakharova said in her Telegram channel.

On Sunday, the International Consortium of Investigative Journalists (ICIJ) published excerpts from about 11.9 million documents containing information about offshore accounts of politicians and celebrities. According to ICIJ, the US state of South Dakota has become one of the larges offshore centers, where tens of millions of dollars have been transferred to from ‘traditional’ offshore investments, such as the Bahamas and the Cayman Islands in the last few years.  Link

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That was excellent. Do you have a link to the piece that this came from?

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I see that Eric Crampton has thrown a First Nation spanner into the economically disastrous planning and house building space.

In Stuff, so it's right out there .....

It will be Interesting to monitor any uptake of the notion that Te Tiriti never did cede the Right to Build .....

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FOMO is not a proper strategy.

As opposed to the Crypto Hamsters HODL strategy? [Link]

Almost everyone can be a winner in this market thanks to low interest rates and an overstimulated economy. Only when the tide eventually goes out...

 

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Almost everyone can be a winner in this market...

This is true Squish. Even monkeys can make money in these markets, except perhaps in gold. But I'm not selling my stash even if I'm mercilessly mocked at the BBQ. The problem as I see it in NZ is that the suburbs are teeming with Ashley Church-type figures who think they have unraveled the secrets of the universe because of NZ house prices. 

On the ol' rat poison, NZ looks like it has its first fund in the space (see link). There's a little bit or irony in that the founders come from backgrounds at Barclays, KPMG, and Westpac. Anyway, it fits a certain kind of buyer. Not for me but that's beside the point. 

https://www.rnz.co.nz/news/business/452857/bitcoin-fund-aims-to-attract…   

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Not a fan of Church, but really start to believe this is only going to continue as the hole is to big to stop the stimulation. Sad to see gap grow till desperation takes over. 

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Oh for sure. The stimmy is going to continue for a long time. Not sure how it will stop. But at the end of the day, once you financialize the lowest lowest rungs of human needs to the nth degree, you can only expect collapse or else risk total dystopia. 

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I don't know, inflation is starting to limit their policy options. We've all had a bit too much of the punch.

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"CBA went to the market to buy back AU$6 bln worth of its shares..."

Nothing like some generosity from RBA to reward bank shareholders.

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I like Bitcoin at these levels, it means almost ALL holders of Bitcoin in El Salvador are in profit [in US dollar terms] - which is pretty kool.

Also, keep in mind El Salvador's Chivo Wallet lets users move instantly between dollars and Bitcoin so nobody is forced to use either.

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All proxy is based on belief.

But this:

"Green bonds issued by Council are issued in accordance with Council’s Sustainable
Finance Framework as it relates to green bonds."

had me chuckling. Reminds me of the Broadcasting Standards...... 

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Councils Sustainable Finance Framework might well be the most harrowing combination of 4 words that I’ve ever encountered 

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Sustainable Economic Growth is the worst 'three'.

Sustainable Growth the worst 'two'.

And Growth the biggest one-word misguided belief of them all.

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