90 seconds at 9 am with BNZ

90 seconds at 9 am: Surprise Chinese rate hike slams global stocks and commodity currencies; Fonterra powder prices down 2.5%

20th Oct 10, 9:06am by Bernard Hickey

Bernard Hickey details the key news overnight in 90 seconds at 9 am in association with Bank of New Zealand, including a surprising hike in official interest rates by Chinese authorities.

This raised fears of a slowdown in the world's most dynamic economy, hitting global stock markets and those currencies seen as exposed to commodity prices.

The New Zealand dollar fell under 75 USc and the Australian dollar fell to 96 USc, well below the 100 USc it briefly touched on Friday night.

The Dow fell more than 2%, while the gold price fell US$40 and ounce to US$1,331/oz. Oil fell US$3/bbl to US$79/bbl.

Australian stock markets are expected to fall heavily, given Australia's exposure to China's growth through its mining exports.

Overnight Fonterra completed another fortnightly internet auction of milk powder. Prices fell 2.5%, adding to a fall of more than 1% in the previous auction.

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29 Comments

by andyh | 20th Oct 10, 9:16am 1287519389

This story from Zambia has attracted interest in Europe:

http://www.telegraph.co.uk/news/worldnews/africaandindianocean/zambia/8…

''Police said that the Chinese executives opened fire on workers protesting against poor pay and conditions at the Collum coal mine in the southern Sinazongwe province on Friday.

Eleven people were admitted to hospital with wounds to the stomachs, hands and legs, and two are understood to remain in a critical condition''.

And as a follow up susbsequent attempts to petition the Chinese embassy were blocked by the police:

http://www.lusakatimes.com/2010/10/19/police-block-petition-shooting/

by David George | 20th Oct 10, 9:53am 1287521585

NZ Herald 20/10/20:

"Chinese executives opened fire on workers protesting against poor pay and conditions at the Sinlait milk Factory west of Hamilton on Friday.

Eleven people were admitted to hospital with wounds to the stomachs, hands and legs, and two are understood to remain in a critical condition''.

And as a follow up susbsequent attempts to petition the Chinese embassy were blocked by the police"

by Vanderlei Luxemburgo | 20th Oct 10, 10:17am 1287523021

That's quite chilling KD......

by rc | 20th Oct 10, 10:18am 1287523088

This is interesting also "........the miners had been told that they would not be paid for days when they had been ordered to stop mining because enough coal had been produced."

I thought China was on a resource grab, now they have enough??

by Boatman | 20th Oct 10, 10:49am 1287524950

I come from the region having grown up in what was called Northern and Southern Rhodesia ( Now called Zambia and Zimbabwe ) I have commented before on this blog about the Chinese in Zambia when I wrote about them building the TAZARA railway line in Zambia . I was attacked by everyone as racist for saying you cannot trust the Chinese Communist party .

The Chinese come into your county and cause nothing but trouble . They dont respect your culture , shoot your wildlife and eat it or use it as aphrodisiacs , make congress with your womenfolk , steal your minerals and are generally arrogant towards Africans. When you challenge their behaviour , they claim they dont understand the language. They have different business ethics to the rest of the world and cannot be trusted . Simple

Image if they were to shoot New Zealand workers protesting about poor treatment ?

by Casual Observer | 20th Oct 10, 11:23am 1287527017

Actually you may be surprised at the number of kiwis who do agree with you both.

What do you think would have happened if Fonterra said 'No' when 'asked' to invest in more farms in China?

by Justice | 20th Oct 10, 5:50pm 1287550215

We ARE listening and WE are aware so throw that 'box' you put us all in away thanks

Not you Casual, the other two. hit the wrong link

by Boatman | 20th Oct 10, 10:30pm 1287567021

Justice , just to clarify , I did not 'box' Kiwis , At 50 I have lived here for almost a generation , and my teenage kids dont realy know any other place . But I do have personal experience of Chinese duplicity . They encouraged the communist- leaning Zambian government to nationalise the copper and other mines which were owned by British companies like the fore runner of BHP . They made a mess of them , and now look at who owns Zambia's mines. Its not Zambians but Chinese . The Chinese Peoples Republic only do things in their self interest and they realy dont care about the consequences. My family's business interests in Central Africa were destroyed by communist inpsired policies such as nationailsation in the 1970's and 80's . Chinese investment patterns are unlike Amercian Multinationals like say McDonalds, KFC, Coca Cola , etc , who at least offer franchises to citizens in the host country, or even the much maligned Oil Companies , you as a Kiwi can still but a petrol station franchise from a US Oil Co like Caltex . The Chinese have this unpleasant grab, control and pillage mentaility . There is a really nasty underbelly to Chinese business ethics , and many New Zealanders are a bit starry eyed about 'wealthy Chinese investors' . Its Bollocks , there are few really wealthy individuals in China but they have access to cheap ( low interest rate ) or syndicated money to invest . These so -called weathly investors are often 'fronting' for investment syndicates who are ruthless . They are not some benevolent society , nor are they passive investors who will invest our NZX Companies for example . They want control or nothing . One needs to be very weary

by hauraki | 20th Oct 10, 12:34pm 1287531272

"The Chinese come into your county and cause nothing but trouble . They dont respect your culture , shoot your wildlife and eat it or use it as aphrodisiacs , make congress with your womenfolk , steal your minerals and are generally arrogant towards Africans"

sounds like what westerners been doing in the last 3 centuries and still doing now in some regions.

the overlord changed to another country. roll over, or get up.

"Image if they were to shoot New Zealand workers protesting about poor treatment ?"

they don't get shot, they get tasered.

by Christov | 20th Oct 10, 10:04am 1287522241

Bernard................while I know you are a busy man ...I wonder if I may impose upon you to post in top 10 at ten a snippet from Gilliard's comment yesterday on Australia's stay in Afghanistan........it had nothing to do with Afghanistan....listen to what she said....she has sent the message in a very clear way both internally and Globally ...(albeit in the guise of another situation)......just who their alliance are to.

Choices are being sought ....choices are being made.

by Steptoe | 20th Oct 10, 10:04am 1287522296

These graphs only go back 5 yrs..into a period of abnormal financial growth

Would it not be more representative to take them back to several yrs before the abnormal growth started around to 2000 /2002 ?

This way one can see far more accurately overall trends and not just those during abnormal growth and period of abnormal recession and 'recovery'

by rc | 20th Oct 10, 10:14am 1287522864

There are longer periods available at http://www.findata.co.nz

by andyh | 20th Oct 10, 10:27am 1287523639

Claims that China has now restricted shipments of rare earth metals to US and Europe (following on from confirmed suspension of export of same to Japan a few weeks ago):

http://www.cnbc.com/id/39740040

by boyesy | 20th Oct 10, 11:51am 1287528705

Hi Andyh,

Had a laugh about rare earth Blockade....!!!! Wind turbines...Geez I thought they went round and round by themselves...

Gillards comments about Afghanistan...Its what the world knows...rare minerals, afghanistan...2 and 2...

Well back from west Africa and the Saheel....Chinese everywhere...Doing a great job as usuall...Building roads, railways and government building...Geez they are even building us a new port...All great stuff....Cant leave to locals or IMF as it either disappears or breaks...

Seems like China bashing in full swing globaly.....rheteric...Geez iam just getting over Global warming(wish it would hurry up here)...

I think I posted a coupla years back(only re-logged back in)...About the US playing Majong and not knowing the rules....

Cant have it both ways, Capitalim you are either first or last...in a nut shell the rules are changed....All great stuff...

by Chris_J | 20th Oct 10, 12:04pm 1287529496

Bernard

EQC published their estimate of claims in an ad in this morning's Press.

10,000 claims over $100k

50,000 claims $10k - $100k

25,000 claims $0 - $10k

8,500 contents only.

Do the math:

10,000 claims @ $100k plus GST = $1.15b

50,000 claims @ an average say $30,000 plus GST = $1.725b

25,000 claims @ an average say $5,000 plus GST = $143.75m

8,500 claims @ an average say $2,000 plus GST = $19.55m

TOTAL = $2b

by Chris_J | 20th Oct 10, 9:21pm 1287562913

EQC total $2billion.

Here's my guesstimate of the remaining cost:

Insured residential over EQC limit $1-1.5billion

Commercial building and other insured losses $1.5-2.5billion

Uninsured, local and central government $500m to $1billion

Total cost $5-7billion. Certainly no small bill.

by Christov | 20th Oct 10, 12:37pm 1287531440

for another perspective on it..............go to FT.com.....China's rate rise...etc. I would have given the link but on test it goes to please register by default.

anyhoo have a read ...an interesting take on China trying to let the air out of the property bubble with care.............

by David George | 20th Oct 10, 1:32pm 1287534723

The "putback crisis" (similar to and in addition to the subprime and foreclosure crisis) is threatening the big fat fraudulent US banks.

But wait:

"The put-back crisis is not driven by economics. It is driven by legal rights. And there’s simply zero probability that the politicians in Washington are going to let Bank of America or Citigroup or JP Morgan Chase fail because of a legal issue"

Read it again.

These thieves are now, officially, above and beyond the law.

http://www.cnbc.com/id/39686897

by Gummy Bear Hero | 20th Oct 10, 1:37pm 1287535050

Restaurant Brands ( NZX : RBD ) has announced a 50.3 % increase in their half year profit to September 13 , from that of a year ago . The NPAT was $ 13.9 million . A 7 cents half year dividend has been announced ( 4.5 c a year ago ) . The stock is tading up 13 cents today , to a 12 month high of $ 2.65 ( 85 % above the year's low of $ 1.43 ) . The previous PE for the stock was 12.53 .

Let us invert that PE , to show the stock currently has an earnings yield of 8 % , but that yield now appears set to rise substantially .

Show me a quality property which yields so handsomely ! Or a dairy farm . There , tucked away in quiet corners of the NZX are gems of companies , awaiting new owners . Restaurant Brands is a simple , easy to understand business , frequented by regular customers ............. And the good folk at interest.co.nz faff on endlessly aboot fecking houses !

All the better for the Wollys and Gummys of the world to have an easy crack at picking out the tastiest morsels in the sharemarket , whilst everyone else pisses on about bricks'n'mortar .

by andyh | 20th Oct 10, 1:51pm 1287535888

Very true GBH - interestingly they also seem recession proof - hard economic times seem to encourage kiwis through their doors to eat the crap that they serve. Its a great model to be in these days.

by Kunst | 20th Oct 10, 2:12pm 1287537140

Are the Kiwis also imported from China ?

by Wolly | 20th Oct 10, 3:36pm 1287542202

"This is a major, major crisis."...actually it's the warning to get into your bomb shelter!

http://www.marketoracle.co.uk/Article23618.html

Inquiring minds want to know.

1.How many warranties compel the packagers and sellers of these MBS’s to repurchase them and how many and how much is that? Do they have the money? What are the borrowing costs with this toxic waste on the balance sheets? Stock dilution through capital raising? Reserves?

2.Do the packagers/sellers of these MBS’s make the payments on these MBS’s even if the borrowers stop paying? Can they?

3.Do the owners of the MBS’s sui the packagers/sellers and how many and how much is that?

4.How well does the new SEIU (Service Employees International Union) “Where’s the note” campaign work? (Just getting started).

5.What are the affects on the portfolios of the countless underfunded pensions (modeling 8% returns), insurance companies, municipalities, states and sovereign countries?

6.How much will the fines be, assessed by the 50 attorneys general (from broke and desperate states) going to add up to at $10,000 - $25,000 per infraction? They have all filed lawsuits. 11. What are the values of these impaired (limbo) mortgages and how are they accounted for by the institutions? More mark to “Make Believe and Myth” or Market.

7. The 4 “too big to fail” banks are much larger than they were when “too big to fail” started (55% of total bank assets). Now what? The FDIC is hemorrhaging red ink with 294 seized banks so far.

8. How many people get free houses?

9. How many former owners, that lost their homes through fraudulent foreclosure, file an action to set aside the foreclosure and get their houses back? What happens to the new owner?

10. How long and how much money is it going to cost to clear this up?

11. How many lawsuits by how many parties, civil judgments (actual and punitive damages) is this going to result in?

12. How long is it going to take to clear the litigation? An elephant through a python!

13. What is the impact on the credibility and confidence of the U.S. financial system? Figures don’t lie but liars figure.

14. Does the Federal Reserve purchase the trillions of dollars of foreign owned MBS’s to make foreign investors whole? (like last year, only much bigger). With what money? Got Gold or Silver?

14. Will there be any investigations, indictments or prosecutions this time?

15. Are we going to socialize the losses again?

By Mark B. Rasmussen

by steven | 20th Oct 10, 3:49pm 1287542942

I think Steve Keen makes it pretty clear this isnt over...let alone all the others who are doing first rate analysis....so either we are being lied to by Pollies and JK just did that publically knowing better, or they / he are right, or they are so incompetant they cant see this coming......I dont think they are right.......

I suppose the interesting thing is to have a look at JK's investment portfolio and see how or if its changing....if he's selling out as fast as he can, then he's definately lying....

regards

by Gareth Vaughan | 20th Oct 10, 3:43pm 1287542626

FYI, Bollard speaks to Parliament's finance and expenditure select committee - http://www.nzx.com/news/economy/4253904/Interest-rates-unlikely-to-rise

by Vanderlei Luxemburgo | 20th Oct 10, 4:20pm 1287544805

a wise man once said that during recessions he moves in to junk food and debt collection shares.........and by wise man i mean Gene Simmons, but the point stands....when people are poor and hungry they'll eat what makes them feel full.

by Kunst | 20th Oct 10, 4:53pm 1287546780

Root vegetables and tubers (potatoes), basically that category of vegetables that grows underground, have a long and mysterious past. Throughout the course of history, root vegetables were a poor man's food. They were cheap and dirty and plentiful.

Yes - it seems we are going forward to the past.

Alternative potential for NZ farmer's ?

by Justice | 20th Oct 10, 6:36pm 1287552997

A tip for The NZ Wool Growers Co-Op:

Get 'Pink Batts' banned from all NEW NZ house insulation. Wool is one of the BEST natural insulators. Your prices are WEAK because you just DON'T think!

Regards,

Justice

by middleman1 | 20th Oct 10, 9:11pm 1287562299

Gummy Bear Hero

You're wasting your breath if you think you can raise any interest among most Kiwis about the great equities buying opportunities that abounded over recent months and which are still there for some companies. Yields are great and projected to rise in many cases over the next couple of years, very strongly for some.

Sure you can't entirely discount a black swan messing up the party but the run over the last twelve months has been outstanding and a good chance there is quite a bit more to go. Especially once QE2 docks - that hasn't been fully priced in yet. I watch with enjoyable amusement the endless and sometimes clever debates on this site about what house prices will do but hardly a squeak about equities - you need to go to other sites for that.

I'm not a trader or capital gains focussed investor - I'm a ( these days unfashionable) buy and hold blue chipper but despite this conservative approach I've still managed to achieve a gross of +20% over the last 18 months after re-entering the market in March 09 and fully expect to do at least +10% over the next twelve months, barring meltdown. Wouldn't bet on getting anything like that from the housing market where the balance of probability is it'll be in negative territory, possibly double digit.

by Gummy Bear Hero | 20th Oct 10, 11:04pm 1287569091

middleman : Agree with your post . The sharemarket is not in " bubble " territory yet . My preference is for buying and holding small-cap value stocks . But you gotta diversify across more of them , 'cos a few will fail . Butcha lose 100 % at most on any one , but can get a ten-bagger or more on some too . The few big winners average up the overall return .

If we do get a Black Swan event ( i.e. an attack by North Korea upon the South ) , we're all in the crapper together ! History shows the capital system to recover from the worst of shocks within 3 years or so .

Sadly , Bernard has crossed the Rubicon , and joined the interventionalists . The capitalist system creates more wealth and innovation than anything else . Don't waste yer breath trying to explain that to the New Labour-Hickey Party .

Prosperity and Gummies to all !!!