90 seconds at 9 am with BNZ

90 seconds at 9 am with BNZ: Fed's Bernanke to keep rates low for 'extended period'; Gold, Dow, oil up; NZ$ near 81 USc; A$ near US$1.09

28th Apr 11, 8:12am by Bernard Hickey

Bernard Hickey details the key news overnight in 90 seconds at 9 am in association with Bank of New Zealand, including news US Federal Reserve Chairman Ben Bernanke has announced the world's biggest central bank will keep its main official interest rate at an 'exceptionally low' 0% to 0.25% for an 'extended period' because the pace of the US economic recovery was only moderate and he was relaxed about a 'transitory' rise in inflation.

The Federal Reserve lowered its forecast for US economic growth this year into the low 3% range from the high 3%, citing a stubbornly weak rebound in US employment. Here is the full Federal Reserve statement.

See more on the growth forecast reduction here at BBC.

Some celebrated confirmation of continued Federal Reserve support for the US economy and the stock market in particular, while others worried Bernanke's lack of concern about inflation would see more inflation exported globally. See more here at Bloomberg on market reaction.

The Dow was up around 0.5% in late trade, while US Treasury yields rose slightly on fears about future inflation.

The US Federal Reserve has effectively confirmed it will keep printing cheap money to devalue the US dollar and to create inflation to reduce the real value of its debts. This is exporting inflation to the rest of the world and devaluing US dollar assets held by foreigners. It is encouraging many to buy 'hard' assets such as gold, silver and arable land as a hedge against inflation.

Bernanke said in his first press conference after the statement that the 'extended period' of near zero interest rates meant for the 'next couple of meetings', which implies no rise in the Fed Funds rate until September at the earliest.

The Federal Reserve said it would end its second round of quantitative easing as planned on June 30, but would continue recycling money from maturing mortgage bonds into the US Treasury market after June 30, effectively recycling earlier rounds of money printing. See more here from Bloomberg on Bernanke's comments on bond buying.

Currencies in emerging economies and those exposed to commodity prices are rising.

The gold price surged to a record high of over US$1,530/oz and the US dollar weakened against many currencies, including the New Zealand and Australian dollars.

The New Zealand dollar strengthened towards 81 USc and is not far away from its post float highs of nearly 83 USc.

The Australian dollar rose to fresh post float highs of almost US$1.09.

Elsewhere, Standard and Poor's has warned it may downgrade Japan's sovereign credit rating after it forecast the quake and tsunami rebuild could cost Japan more than US$500 billion.

See more here from The Telegraph.

Also, inflation figures in Australia yesterday were stronger than expected, suggesting the Reserve Bank of Australia is likely to increase its Official Cash Rate with in the next 6 months. See more here at The Australian.

The Australian dollar strenghthened slightly against the New Zealand dollar on the prospects for an RBA hike before an RBNZ hike. The NZ$ dropped to under 75 Aussie cents.

The Reserve Bank of New Zealand is expected at 9am to announce it will leave its Official Cash Rate on hold at 2.5%. It is not expected to lift the OCR until December at the earliest, or maybe not until the first half of 2012.

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35 Comments

by Andrewj | 28th Apr 11, 8:47am 1303937220

Who has all the money

http://viableopposition.blogspot.com/2011/04/rich-get-richer-how-taxati…

http://www.oftwominds.com/blog.html

its interesting how the average Joe is getting hammered with no way to improve his finances without a one-way ticket to Aussie. My shearer is out of work and has a job at the local apple packhouse. He works 9 hours a day stacking boxes for after tax earnings of $80. He has 3 children and a little debt. He is being pushed into a corner, where no matter how hard he works, and he works hard he cannot get ahead in NZ. All the Islanders in HB have kept wages very low.

by Amanda Morrall | 28th Apr 11, 8:58am 1303937887

Interesting article! Thanks for posting it.

by steven | 28th Apr 11, 9:09am 1303938551

yep, crazy....guys like that I fell sorry for...they try hard and work hard but get peanuts while the right whingers seem to think high wages indicates you work hard....simply not true.

Problem is now we will see more islanders...all with big families expecting state support for their lifestyle choice.....guess Im going to be called a redneck or a racist but allowing this to continue will just make things worse and worse. Ppl always take the easy option...the UK is a mess because of lax immergration policies...same will happen here, the end result is known as swamping the lifeboat.....

regards

by Hamish | 28th Apr 11, 9:43am 1303940597

I'm not sure that AJ's real life example there showed that wages were being kept low by islanders on welfare? I think you're being a bit disingenious.

by Elley | 28th Apr 11, 9:52am 1303941156

The issue is to work hard for a job pretty much anyone can do (stacking boxes). Physical work is rarely what pays the most.

Not surprisingly, "supply & demand" applies to the job market too. The more people can do what you do, the less you'll get paid for it generally. So maybe people should focus on working hard while at school so they can acquire skills that will be sought after later in life ...

by steven | 28th Apr 11, 10:14am 1303942477

Elly, Some indeed many ppl simply dont have the intelligence to attain a "good" job....yes some ppl waste their time at school.....

regards

by Vera Fayed | 28th Apr 11, 10:28am 1303943311

"some ppl waste their time at school".

Like people who spell people ppl and Elley Elly.

by John Kelly | 28th Apr 11, 10:53am 1303944783

Why the ad hominem stuff?

by Vera Fayed | 28th Apr 11, 12:10pm 1303949404

Ad hominem. Mmmm, scholam non te conamina.

by John Kelly | 29th Apr 11, 2:45pm 1304045106

Ha ha, very good! I did five years' Latin at school, and no, I didn't try very hard.

by JimboJones | 28th Apr 11, 10:16am 1303942596

The thing is that more imigrants coming into the country to do the manual jobs should mean that more higher end jobs are created for your friend. Assuming he is a native english speaker he should have a distinct advantage over most immigrants. He might find himself managing them in the near future...

by steven | 28th Apr 11, 10:25am 1303943144

What rot....it just means there is an abundance of cheap labour....we dont need any more cheap labour...

regards

by Roelof | 28th Apr 11, 9:37am 1303940246

Andrewj.... yes .. I agree with u.

ALSO.... it is my view that every new dollar that is created.... devalues every dollar already in existence. The trouble is that this devaluation is not equitable.

The major beneficeries are the ones who get the first "taste" of this new money.... and then the next one down the food chain also benefits.... etc. The ordinary person does not benefit at all.... and in fact finds his cost of living increasing...... (All this has nothing to do with the CPI index.)

The amazing growth of the "financial sector" over the last 100 yrs is largely a result of this.

Borrowers are beneficiaries of this money supply growth... Savers are victims.

I believe that the most disturbing trend of the current Global Capitalistic system,.... is the concentration of wealth in fewer and fewer hands.... 1% of the population ends up owning 80% of all assets.

I believe that the major cause of this is the debasement of fiat money..... Increasing money supply and cheap credit that is mainly accessable to only a few..... (The purchasing power of the new money is at the cost of all existing money .... kind of like a hidden tax ....... BUT the ones' who get first access to the new money benefit immensely )

( I was told that Goldman Sachs private equity division could borrow money at 4% before the GFC.... very hard to compete with that.)

What Bernanke is doing is just going to end up concentrating more and more wealth in fewer and fewer hands..... ( Also shows the dangers and stupidity of "Macro economics" , that has lost sight of "everyday living" )

Cheers Roelof

by scarfie | 28th Apr 11, 12:35pm 1303950949

One if the points I picked out of a recent read is that the Great Depression resulted in a redistribution of wealth in the average mans favour.

I will have to dig the stats out, but it was certainly the reverse of what I believed, ie: a big land grab.

Trouble is we haven't actually had the depression yet, but no surprise either as it didn't really kick in until 1933 last time. It took that long for all the dodgy leveraged money to be uncovered. So I expect that some time this year, or maybe next, all hell will break loose and the world will see a down turn like never before.

by Wolly | 28th Apr 11, 9:26am 1303939592

Yup that's about the gist of it.....and it aint going to get better steven....look after number one mate...post the election Bolly will be allowed to tell the truth about inflation pressures and raise the rate...that will bring the third downturn and a rerun of the same bank economist BS about growth happening 'next year'...always it is 'next year'......meanwhile the savers are being robbed and discouraged from any effort to save and invest in NZ...move your money into food commodities or out of NZ. Or see it slowly destroyed....'Termite Bolly' is doing his thing.

by JimboJones | 28th Apr 11, 10:12am 1303942341

Just like the housing crash is always happening 'next year'??

by scarfie | 28th Apr 11, 12:29pm 1303950549

Just wait mate, its coming and it is going to hurt. I would step out a bit further than Bernard to say that in the event of debt default, we could see declines over 50% and perhaps as hight as 90%.

by Rob of the North | 28th Apr 11, 10:14am 1303942457

tricky moves by The Fed. and Bernanke there !

The thing that surprised me is how small the reaction (to the upwardly revised inflation forecast) was in the treasury market. The major notes traded within a 6bps range and at the close the 2-year yield was little changed at 0.65 per cent (compared to 1630), the 5-year yield was also little changed at 2.02 per cent and the 10-year was up only 4bps to 3.36 per cent. From the US open, yields were only up about 1-5bps. Aussie futures were only down 1-2 ticks with the 3s at 94.85 and the 10s at 94.51.

There was a more marked reaction elsewhere though and gold hit a new record of $1529.97 before settling at $1526 (up about $20).

interesting times we live in !

by Matt S | 28th Apr 11, 10:53am 1303944805

Gold has been a great investment that's for sure. I like to rub property investors noses in it at every opportunity, but there is a serious side to my messages;

Priced in gold, NZ property prices have fallen over 50% since 2005.

In Jan 2005, it took 441 oz of gold to buy the average house, today it takes just 197 oz.

Since 2005, gold prices in NZD$ have risen almost 200%, or put another way the NZD$ has been devalued by nearly 200%.

If you trust the Govt, our leaders, politicians, economists and bankers and you believe they know what they are doing, then carry on as you are. If not you should consider protecting some part of your wealth with gold.

by FYI | 28th Apr 11, 12:15pm 1303949733

Matt,

Congrats on posting this comment re property prices in terms of gold.

A minority of people actually understand why gold/silver is real money and that it makes total sense to value assets in terms of gold/silver.

It's simple really - you can't print or manufacture gold/silver - but you can print/create fiat (paper) money. The USA is doing it hand-over-fist. It makes them "feel" wealthy. It conveniently devalues their paper money and, for as long as they are able to pay their debts with it, it makes their debts smaller (as mentioned above by BH).

The sceptics think you and I write these things because we want gold/silver prices to rise. Sure that's nice for us and anyone holding a bit of silver/gold.

But, the reason we extol the virtues of these metals is that we've realised how to preserve what we have worked hard for. If you've worked hard, your wealth is worth preserving is it not?

The scariest thing is that 99% of people think stockmarkets are rising and their stocks are increasing their wealth! In terms of gold/silver stockmarkets are plummeting. The stock market at the moment (for non commodity stocks) is a big vacuum sucking up all the worthless cash that's sloshing around. Dow 20,000 is pretty close I reckon - a golden year beckons for the stock market as the "recovery" continues!!

by scarfie | 28th Apr 11, 12:45pm 1303951527

I posted some charts on here the other day contradict what you say about shares. S&P 500 has out performed oil and gold over the last couple of years.

by Matt S | 28th Apr 11, 12:50pm 1303951828

The Zimbabwe stock exchange also did very well in nominal terms. Shareholders became Trillionaires in a matter of months.

by scarfie | 28th Apr 11, 1:09pm 1303952982

How can you compare Zimbabwe currency to the Euro or the USD?

Actually now that you mention it.......

by Gummy Bear Hero | 28th Apr 11, 1:13pm 1303953201

Matt S : The Gummster wants you to be filthy-stinking-rich ; just click on this link , send yer $NZ 8 , and you're guaranteed a fortune ! ........

www.trademe.co.nz/Antiques-collectibles/Banknotes/Africa/auction-370718339.htm

by scarfie | 28th Apr 11, 1:14pm 1303953266

$8 is probably 100x the purchasing power of the note, haha.

by Gummy Bear Hero | 28th Apr 11, 1:21pm 1303953686

I was listening to a BBC report on Zimbobo ; one day a dozen eggs cost you 300 Trillion , the very next day , 500 Trillion ........ If the shop still had some , to sell !

by scarfie | 28th Apr 11, 1:31pm 1303954319

I should consider myself quite fortunate that I already own a good wheelbarrow. Mind you its 20Kms to the shops:(

by Andrewj | 28th Apr 11, 10:23am 1303943024

He is packing apples for 'Mr Apple' part of the SCF empire. WE have thousands of Islanders helping in the horticulture industry. I here figures as high as 10,000 of them. My friend grew Onions the Islanders stayed in a tent to save money, they are keeping the industry going as the average kiw cannot survive on these wages. A friend with an apple orchard told me this year he spent 680k on costs and is expecting 550k in sales and that is with the cheap labour. They were hoping for a NZ$ in the the high 60's instead it looks like its in the low 80's.

We need to have some discussion about the imbalances in our economy before its too late. My shearer came from a tough background and has worked hard and done well, a very good honest christian guy. I think Elly there go us all with the wrong parents, his children are great and no doubt will go to uni before leaving for Australia.

by michael | 28th Apr 11, 10:35am 1303943748

Andrewj, you have mentioned the importance of a high kiwi, You are so correct. You simply can't expect to make a proffit exporting by producing in a high currency and selling to markets with cheaper currencies your costs are way out of wack . Every commodity export lead economy is facing the same trouble, so unless your product has a huge added value you will strugle to profit from it. Although some geniuses here at the thread think otherwise.

by steven | 28th Apr 11, 10:42am 1303944151

If we cant get apples for a decent return I wonder why we are even growing them, too much supply every year for years indicates move out of the industry......subsidizing the industry by allowing cheap labour into NZ doesnt strike me as sensible....

Interesting piece on what makes a country rich....by doing the above we reduce productivity....so apple pickers on mimimum wages v apple employees....the latter works out at 2million per employee v a picker on mimium wages....$25k?

No wonder when we work out productivity against GDP its getting worse...

and then we can throw in retail....lots of shop assisatnts on low wages isnt any good.... throw in tourism coffee makes ad bed makers in hotels isnt any good...

PI/housing does what?

Manufacturing seems to be at least some good...but what does JK take an interest in? tourism....wrong focus IF he really wants whats best for NZ as opposed to doing well for his mates and himself....

regards

by Elley | 28th Apr 11, 1:44pm 1303955091

Aj, I am not doubting for a second how hard your friend is working (as are many others on low wages). All I am saying is that low-skilled jobs attract low wages, and that's not specific to NZ but rather universal. Unfortunately, how hard one works doesn't come into it.

Hence why I am saying that being careful in one's career choice and working hard to achieve one's goal in that respect is paramount. I realise that not all children are raised in great conditions and not everyone is born with the same ability but the education system is supposed to give everybody a shot so let's take it.

by Roger Witherspoon | 28th Apr 11, 11:06am 1303945580

CI: So they averted a Chernobyl?

EJ: The risk in the first few days was for a catastrophe far, far worse than a Chernobyl.

CI: Worse than Chernobyl?

EJ: There are 4,277 metric tons of fuel at the plant, 3,400 tons in seven spent fuel pools plus 877 tons of active fuel in the cores of the reactors. There were only 180 tons of material in total at Chernobyl. Failure to contain the material at Fukushima Daiichi meant the possibility existed for the equivalent of five or eight Chernobyls, rendering a major part of Japan uninhabitable. All of this will all come out in time, just how desperate and high stakes the battle was. Look for a Frontline piece on it some day, maybe. It was a suicide mission for the 50 workers who stayed on during the critical phase of the first week of the crisis. My understanding is that they were told, “If you fail, your country will be destroyed.” Sadly, it is expected that many of those 50, who spent days getting bombarded with gamma radiation and neutrons, may become ill if they aren’t already.

http://www.itulip.com/forums/showthread.php/19098-Global-Monetary-Meltd…

by neco | 28th Apr 11, 3:11pm 1303960292

Gerald Celente on the Bernanke press conference:

http://www.youtube.com/watch?v=yfo9_qksIIM&feature=share

Even better, Ron Paul on the Bernanke press conference:

http://asofm.wordpress.com/2011/04/27/ron-paul-calls-b-s-on-bernanke/

by Wolly | 28th Apr 11, 3:22pm 1303960928

You really don't want to read this:

http://www.marketoracle.co.uk/Article27801.html

Double wammy....!

http://www.marketoracle.co.uk/Article27805.html

by Andrewj | 28th Apr 11, 3:46pm 1303962396

Ive just been out to a frineds at the coast in HB. 20 inches of rain in two days (500mm) the place is a disaster zone, the road is a mess side roads all closed. He has about %50 of his farm in slips, not a stock proof fence on the farm. It really is a 1 in 100 year event, ive never seen such a mess. The cattle yards are lower than my sheep yards. its the coast of central HB thats worst up to North of Napier. TV One had a reporter and crew there so should be on the news tonight. Looks like cyclone Bola all over again.