Top 10 at 10: Kieran Trass on property prices; Kiwi pension windfall; Michael Lewis on Warren Buffett
19th May 09, 10:00am
Here's my top 10 links at 10 am. I welcome your suggestions in the comments below. We had some crackers yesterday. Cheers to everyone. 1. Kieran Trass from his Hybrid Group tells TV3 here why he thinks New Zealand house prices have another 10% to fall and how we're in the eye of the storm of the hurricane. I agree, except I think we still have another 20% to fall over a longer period. 2. Denise McNabb at BusinessDay has an exclusive on how New Zealanders may be about to get a pensions windfall. About A$13 billion is locked up in 'lost' Australian pension fund accounts and many think most of it is owed to New Zealanders. Until now New Zealanders with money in Australian pensions could not withdraw it until they turned 60, but the Australian government is looking at allowing New Zealanders to pull their money out and put it into KiwiSaver accounts. 3. Risk consultant Satyajit Das has an excellent overview of the current financial crisis and clear understanding of why the era of debt-funded consumption is over and why we should prepare for many years of low growth. Here's his view in The Age. Das is the author of Traders Guns and Money: Knowns and unknowns in the dazzling world of dervivatives. Here's great interview he gave to Andrew Patterson at Radio Live's Sunday Business programme last month. Here's a taste of his view.
There is confusion between the "disease" "” high levels of debt "” and the "cure" "” the reduction of the level of debt now under way (deleveraging). Debt within the financial system is falling as some borrowers default, destroying existing debt and also limiting the capacity for further credit creation. Total losses from the crisis are estimated by the International Monetary Fund at about $US4.1 trillion ($A5.4 trillion), of which $US2.7 trillion will be borne by financial institutions. Government ownership, or de facto nationalisation, has become the primary option to recapitalise the banking system in many countries. Even after recapitalisation there is likely to be a capital shortfall in the global banking system of about $US1 trillion-plus, forcing a contraction in global credit of about 20-30 per cent from existing levels. This is much more than a banking problem. At this point it affects the real economy. Increased cost and reduced availability of debt forces companies to reduce leverage by cutting costs, selling assets, reducing investment and raising equity. This also forces consumers to reduce debt by selling assets and reducing consumption. Recent excitement about the "stress tests" of US banks misses an essential point. At best, if you accept the premises of the test, the risk of failure of these institutions is much reduced. But the banks' ability to support lending levels that prevailed in, say, 2007 has not been restored. In short, the "credit crunch", or shortage of borrowing, will continue for a long time. This combination of factors may lock the global economy into a cycle of low growth, bringing an end to the age of Ponzi prosperity.4. Calculated Risk points out that stress in global credit markets is easing in several measures, including the TED spread, the A2P2 spread and LIBOR. Does this mean the international funding costs for our banks will come down too? We'll see, but worth asking the question now. It has been the reason why they haven't been able to pass on the last OCR cut to variable rate borrowers. 5. This guy Howard Davidowitz is a barrel of laughs in this video that is 7 minutes long. A cogent if somewhat colourful description of the economic Armageddon hitting America. He makes a persuasive case. This is a great graphic detailing the 100 years leading up to the Credit Crunch. 6. The FT.com has worked out that America's small and medium sized banks need to raise US$24 billion to meet the capital standards set by the new government. 7. Rabobank plans to issue a NZ$419 million Uridashi bond next month, Businesswire.co.nz reports. 8. Gambling addiction is not a fun topic, but this story here in the Sydney Morning Herald is worth a chuckle. A high roller who gambled away A$1.5 billion is now suing the Crown casino for aggressively encouraging him to gamble when it knew he had an addiction problem.
Crown regularly flew Harry Kakavas from his former home on the Gold Coast to Melbourne in its Gulf Stream jet so he could gamble, the court heard. On several flights the pilot, on Crown's behalf, gave Mr Kakavas a box of "lucky money," between $30,000 and $50,000 each time, to get him started. The court heard the casino owner, James Packer, personally approved the cash gifts, which were kept secret from his father, Kerry Packer, to avoid trouble.9. Here is an innovative piece of web journalism from the New York Times. It has asked its readers to send in their photos that tell their stories about the recession in the United States. It makes for a sobering view. 10. This is a cracker from Michael Lewis, writer of Barbarians at the Gate, Liar's Poker, in the New Republic. It is essentially a very sceptical (and some would say heretical) view on Warren Buffett. It's actually more nuanced and balanced (and therefore more interesting) view on the great man. It is a review of Alice Schroeder's book on Buffett: The Snowball: Warren Buffett and the Business of Life. Among the revelations, Buffett was a pathological shoplifter as a boy and essentially had a polygamous relationship with his wife and mistress for much of his married life. He also cares so deeply about what people think of him that he has made big mistakes. Lewis says Buffett may now be getting soft in his old age and may be worth betting against. I'm not so sure. He has made far fewer mistakes than most and has been right about most things.
In Schroeder's telling, the young Warren was sneaky, socially awkward, and generally a wiseass with a cruel streak. As a man he would reserve his harshest criticism for those who lied or cheated or stole, but as a boy he shoplifted pathologically--not because he wanted a particular thing, but simply for the pleasure of stealing.