Bernard Hickey details the key news overnight in 90 seconds at 9 am in association with Bank of New Zealand, including news that stocks plunged on global markets overnight on near panic about the state of the global economy.
The New Zealand dollar slumped to 82.75 USc this morning as the Dow plunged 512 points or 4.3% on growing fears the world's largest economy is sliding back into recession and signs the contagion over European sovereign debt is spreading to Italy and Spain.
The S&P 500 fell 4.8% or more than US$500 billion in value in one day and is now down 10% (an official correction) in the last fortnight.
US stock markets have fallen US$1.3 trillion in value this week, which will make American households feel poorer and tighten their belts even more. US house prices have also been falling again in recent months, unleashing a negative wealth effect in the world's largest economy.
The Nasdaq fell more than 5%. US Treasury yields rallied to record lows as panicked investors sought safety wherever they could find it. The US 2 year Treasury yield fell to 0.26%. See more here at Bloomberg.
The VIX index of volatility, also known as the fear index, rose 35% in its biggest jump since February 2007, widely seen as the beginning of the Global Financial Crisis when sub-prime debt started collapsing. See more here at Bloomberg.
One factor in the market's slump was news from Bank of New York that it would start charging clients a 13 basis point fee for holding large cash deposits, which means depositers have to pay the bank money to hold the cash. See more here at Bloomberg.
Here's a view from one large investor quoted by Bloomberg:
“People have had three years of being told by Washington and the news media that we are in a recovery,” Doreen Mogavero, chief executive officer of Mogavero, Lee & Co., said in a telephone interview from the New York Stock Exchange.
“Now to find out that we are not only not recovering but that growth is slowing, things are reversing, there’s going to be a double dip, ten more years of austerity, it’s completely disconcerting to the average investor.”
The New Zealand has fallen from over 88 USc since Monday as growing turmoil on financial markets saw investors move back to 'safer' assets from riskier assets in currencies such as the Australian and New Zealand dollar, which are more exposed to commodity prices.
A slowdown in the global economy is expected to drag commodity prices lower. The oil price fell more than 5% to below US$87/bbl.
See more here at Reuters on the market rout.
The European Central Bank was reported to have bought bonds to stem the panic in European bond markets.
It also pumped fresh cash into money markets to try to stop them from freezing again in the same way they did when Lehman Brothers collapsed.
See more here at Bloomberg on the ECB's bond buying.
There are also growing worries Italy may run out of cash by September if it cannot access bond markets.
Disillusion with the European Union's previous rescue plan is widespread. It is deemed to be insufficient to deal with any bailout of the Spanish and Italian governments.
(Updated with more details, links, chart below)
No chart with that title exists.
134 Comments
This a back to the future moment folks...all the BS spin and lying has amounted to a big pile of nothing....debt is debt and only fools think otherwise.
Ohhhh but all we need is to borrow from ourselves by printing heaps of shit and spending it on infrastructure and that will create zillions of jobs and everyone will be happy as and they will start borrowing heaps from banks and away we go again...and .....what do you mean it won't work....they said it would work....
Bugger
Now now oilyn let him have his day...there will be times and places when his guess proves to be correct...all is well in the land of the property speculator until Labour slithers back into power and bashes the place silly with a CGT madness that soaks up tens of thousands into IRD jobs needed to manage their madness.
FYI Euro crashing vs Swiss franc After Hours On Italian Bank Run Concerns http://is.gd/I2X0yX
It is all beginning to look like the Japanese crash. Years of austerity, decades of falling property prices, people never spending just saving or repaying debt. The retiring baby boomers will excacerebate this. The financial wizards can borrow and try to pump the ecconomy as hard as they like. It is a tired song that doesnt work and in the end you cannot escape reality, the piper must be paid.
Hi BH, Bollys sure to put the OCR up 50pts in Sep - yeah right!!!!!
Can you or Alex please put up a prediction page somewhere on the site from all those really intelligent "economists" from ASB, WestPac, etc from last week on their predictions for interest rates and the OCR in Sep, 3mths, 6mths, 1yr, etc?? We need to be able to easily refer to these fools predictions over the next year ot two so we know what fools they are in the future so we can ask ourselves would you do business with a bank with one of these twats as chief economist. I say this because these guys and girls just have no idea, they are not even recognising the issues in the world economy, possibly because they have absolutely no experience of anything other than growth upon growth upon growth in their tiny lives.
This latest crisis is exactly why I am not fixing any of my mortgage with JK's mates at the banks. Nothing has fundamentally changed therefore nothing will change. We are in for an extended period of uncertainty and will be in and out of depression for at least the next 5-10 years. In NZ, there has been basically no structural fixes at all to the NZ economy, no vision, nothing to stimulate growth or anthing from Donkey, just a strategy of more borrow, borrow, borrow to the tune of what $325m a week now. In the world, saem thing, no "fixes" in the world economy. They all still seem to think that growth is unlimited and only a printing press away as a result there has been no fundamental change in their thinking ergo no change to tackle the rapidly growing economic problems they are trying to sort.
Here's one prediction that really takes the cake:
Jobless tipped to drop to 5% late next year
http://www.stuff.co.nz/dominion-post/news/5390927/Jobless-tipped-to-drop-to-5pc-late-next-year
CBS
Here's that list of what all the economists have said would happen to interest rates.
Scroll to the bottom for the table.
I agree we're less likely to see an OCR hike on September 15 now.
http://www.interest.co.nz/opinion/54605/crystal-ball-post-july-28-ocr-w…
cheers
Bernard
Where did it get us?
Well it has helped folk pay down their mortgages - keeping the monthly payments the same and reducing their principle. Perversley that extingishment of debt may be a factor in the weak/flat credit growth we are seeing. I'm sure it has also helped typical household budget cope with high fuel and food prices, 20% rise in GST and the stealth taxes this Government have introduced.
Maybe although I don't think so as per KiwiDave's comments. What shouldn't have happened was the 50pc increase from 2.5 to 3 Bolly did in 2010 bc of this awesome recovery NZ was having - NOT, now that was just stupid!!!! Alot of economics people and dumb politicians just don't get that the game has fundamentally changed and cheap, continuous growth is not un-ending and no longer possible for the developed countries of the world. Until they get it this will continue and depression and deflation, or maybe stagflation, will be the norm. How long until they get it will determine when we get out of this. I am predicting it will take 5-10yrs before we get better (and at this stage I'm not really sure what "better" will look like in the current environment) and it will be closer to 10, and I may even be understating!!!!
I have posted submissions to the "suggestions box" at Interest.co.nz for that very thing on two occasions. No response. No comment. No action. Must be potentially too embarrassing. Yet can't possibly be as embarrassing as the scorn that has been heaped on BH over the years about his 35% drop in property prices. Needs a bit more clamour. The head sherangs around here will ultimately respond to the wishes of their valued readers.
BH, thanks for the link but I agree totally with iconoclast. How about a dedicated link from the front page to an annual Predictions page, call it "They said what - 20xx?!??" Get Alex to do it, he's really good at that sort of stuff and pulling things together. We really need to be able to go back in time and see what these highly paid chicken entrail readers are predicting at points in time - they get paid enough they should be reminded of their expert opinions by us mere underlings every once and a while
Thanks CBS and Iconoclast.
It's a good idea. That list referred to above is a start.
Let us think about how we could do it.
By the way: I'm still happy with my original 30% price fall forecast. I downgraded it to 15%, but it wouldn't surprise me if we get there in the end. Also, I was closer to what we got (around 11% at its worst) than most others...
And we're not out of the woods yet, as the last week has shown...
cheers
Bernard
Soemthing along the lines of the "House Price Predictions" table on http://www.housepricecrash.co.uk/index.php might be a hoot!
I kinda like:
"NZD is a safe haven currency ...."
(You know the rest) ;-)
too late it's gone viral ...read the transcrpt here...gobsmacking stuff...........http://www.theonion.com/articles/drunken-ben-bernanke-tells-everyone-at-neighborhoo,21059/
This site says it's false.
Awww, Christov I'm heartbroken I spoilt your afternoon. Check this out, it'll put a smile back on that face of yours.
god damn boys and girls now thats honesty and thats what we want to hear baby - the fricking TRUTH!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! Revolution time. I know how to solve this - time to string DonKey and all his banker mates up by the gonads and let them swing - yee-haa
The Onion is a satirical newspaper:
- Obama Turns 50 Despite Republican Opposition 08.04.11
- Danny DeVito A Lot Taller, Thinner In Person 08.03.11
- Drunken Ben Bernanke Tells Everyone At Neighborhood Bar How Screwed U.S. Economy Really Is 08.03.11
- FDA: Everyone Needs To Induce Vomiting Right Now 08.02.11
- Windows Opened On Both Coasts In Effort To Create Transcontinental Cross-Breeze08.01.11
nobody can say they weren't warned:
http://ourfiniteworld.com/2011/07/11/the-link-between-peak-oil-and-peak-debt-part-1/
You do realise this is consistent with what the peakoilers predicted right!? You'll find talk about 'a bumpy plateau' in which prices rise --> contribute to recession --> Price drop --> Economy improves --> Oil price rise more --> Recession etc... etc...
Here Gonzo, straight out of 2006:
http://www.fromthewilderness.com/members/100406_markets_react.shtml
Concur, a GONZ research paper also came to that conclusion earlier this year/late last year. http://www.stuff.co.nz/business/4228359/Dwindling-oil-supplies-threaten-economies
Oh hi troll.
Look up the effects on the US economy when energy gets to around 6%.....very consistant behaviour.....
Look at the last one, we went to $147 then $35 mage recession and 10% unemployemnt.......if this is another big one then $35 again inside 12months shouldnt be a surprise, 15% unemployment?. Then we'll climb back to $80ish I suppose, stagger along, climb to somewhere over $100 and collapse again.....high volitility was predicted.....
regards
And this in the SMH -
If you thought round one of the financial crisis was pretty rough three years ago, that was just a dress rehearsal for the main act. And the performance has just begun.
Read more: http://www.smh.com.au/business/this-time-its-serious-20110805-1ie4t.html#ixzz1U6IUoKO4
and in the imortal words of Karen Carpenter "it's only just begun......
Gummy is snaffling up bargains on the world's stock markets like a pig snuffling out truffles ........
... there's one hoo-a of alotta companys out there with fat , lazy balance sheets ..... all the better to reward their shareholders with some juicy big dividend payments .......
And even if the markets roil & bubble for an extended period , those dividend cheques are a sweet consolation.......
regards
No , that was me who spent all of 2010 bellowing his lungs out that Allied Farmers would not be a bargain at any price ....
.... and now they've decided to go back to livestock trading , where the company originally started , back to their roots ........
......it's been an expensive lesson, and a tortuous journey for Rob Alloway to learn what Granny Gummy told us chitlins , " stick to your knitting , sonny boy ."
This is very ominous , its called a DEAD CAT BOUNCE ...... Look at the market GRAPHIC over the period since the first GFC. The DOW and FTSE Graphics bewteen Oct 2008 and today are showing the same trend shape as WALL STREET between 1929 and 1931.
I would like to know what Dr Bollard is thinking right now ....
Ein guter link fuer mehr Informationen ueber die Schweiz in englisch:
http://www.swissinfo.ch/eng/business/index.html?cid=4352
People are also worried about a property bubble in Switzerland
This means if you keep money with the Banks, instead of paying you interest, they charge you a fee to take it from you and keep with them....
http://www.bloomberg.com/news/2011-08-04/money-market-rates-fall-below-…
Happy B'day, POTUS
SmoKey..that's been going on here for yonks...it's called debasement and is fundamental NZ govt policy.. Put a dollar in a bank account and one year later it will be 96 cents in value and you pay tax on the interest paid to you on the 4 cents stolen. So if the rate were 3%, you are taxed at your marginal rate on the 3 cents...and the dollar lost 4 cents...that's how the system works....You started with 100...you earned 3....you had 1 in tax stolen from you and the remaining 102 has fallen back to 98....didn't you do well...!
Not more to say to the upcoming worldwide depression:
http://www.youtube.com/watch?v=mS0IjrQViCA&feature=youtu.be
Looking into current developments on many fronts – the world will never recover again, simply because among the powerful in societies ethic and moral requirements and standards don’t prevail.
Weimar Meets Waterloo http://kunstler.com/blog/2011/08/weimar-meets-waterloo.html
Read all about it....if you dare!
http://www.marketoracle.co.uk/Article29665.html
we live in a world of liars I fear.
"the Italian Treasury must roll over 69 billion Euros in August and September. The Italian Govt debt due between July and end 2011 totals 175 billion Euros, whose financing simply will not happen. Italy must find buyers for a staggering 500 billion Euros in new securities by the end of 2013. Italy will break the Euro"
This is so much fun!.....not
:/
regards
Surely with this sort of volativity, cash is NEVER the thing to have? I would have thought that assets are the best thing. I reckon those who have anything left if the rates start to drop will put it into fixed assets, not leave them in the bank. We keep talking about a Japanese type collapse - money in the bank is useless there. Anyone remember the story about the wheelbarrow full of notes outside a bread shop in Germany during the Weimar Republic years???
WE are long way off being a 'Japan', I don't see the comparison, when did they last run a trade deficit? Interest rates will now sort out the debt problem.
Mish also doesn't see inflation, why would the ones in the know be hoarding cash only one answer, Defaltion.
>>>
Everyone Hoarding Cash
Everyone is looking to hoard cash. Let me ask a simple question.
Does this happen in hyperinflation or does it happen in deflation?
In its grand QE experiment the Fed pushed rates to zero, flooded the world with cash, then expected banks to lend and businesses to expand. Did it work?
Clearly not. No one wants to put that cash to use. If you were a business would you be hiring here? I wouldn't, and neither are businesses. Instead cash sits in banks or short-term treasuries earning zero or even negative percent.
When was hyperinflation supposed to start?
Oh, I just remembered: 2011, a year chosen by at least a couple people. Others expect it next year.
Hyperinflationists simply do not understand the role of credit in a global economy. China has a huge inflation problem and various property bubbles because credit growth is soaring 30% annually.
In the US, banks want credit-worthy borrowers. However, credit-worthy borrowers are parking cash, not asking for more of it.
http://globaleconomicanalysis.blogspot.com/Cash..is excactly what to have in this market, frazcam. If interest rates fall to zero, then you just get a dollar back for every dollar you put in the bank ( or sack under the bed!). If asset prices rise, you can buy at-will. If you have no cash ( or worse...debt) and asset prices fall...good luck (1) selling them and (2) good luck with the value of debt/market price ratio as whatever equity evapourates into thin air. PS: Some Japanese property market dropped 90% from their high. Cash would look mighty good in comparison!
@ frazcam: The belief that 'inflation' comes with increased money supply hinges on that increased money base finding its way into disposable incomes ( either wage rises or increased borrowing). Which of those two is likely to occurr, right now? Id' suggest...neither. Rising unemployment will suppress wage demands, and debt saturation precludes further borrowing. Whilst necessities prices may increase ( food, energy etc) it's highly unlikley desposable income will rise to meet those costs. Any 'money printing' will simply go to the indebted to repay their commitments ( or held against them, 'just in case'). What would you do with any 'new' money today? Spend it, or look at your personal balance sheet and put it away against any debts you have, 'just in case'?
Frazcam...When the First cab of the rank demonstated emphatically the futility of a QE strategy/position it will have put Global reserve institutions in two minds about proceeding...even the race to the bottom became inconclusive with non starters..non finishers..also rans still scratching themselves.
The probability of indoctrinated proceedure being enacted ..,I believe , is out the window for now.
The dead cat bounce is reaching terminal velocity..........and this will be no place for pussy's
Happy Renter
well thats not what the big boys are doing, they are hording cash, if its good enough fore the Cabal, then its good enough for me. Hows Ben going to do QE III if the banks just want to give the money back, because there is no demand for loans and it costs to hold cash?
>>>
The fastest-growing asset on bank balance sheets this year is cash. Since the beginning of the year, U.S. bank holdings of cash are up 83%, or $890 billion, to $1.98 trillion. Consumer loans, by contrast, have grown 0.2%, or $1.7 billion. Commercial and industrial loans are up 3.8%, or $46.1 billion.
http://online.wsj.com/article/SB100014240531119033665045764881239654680…The US banks are hoarding cash you say? I am not surprised after the balls up they made of the property market - again, we must be careful not to compare the US with every other country. I accept they are the biggest economy in the world, but they have a different set of rules to everybody else. In times of strife, I would rather owe than be owed.
Bernard, you often talk about our debt level and interest rates and i commend you for that as it needs to be brought out into the open. Unfortunately though you never talk about the banking fractional reserve system which is at the heart of all this stuff. Here is my explanation on why we can never get out of debt
Imagine that you have a shop and bank $1,000. Now, i, Mike goes to the bank and borrows that $1,000 and then go to your shop and spends it. You now have your $1,000 back.
You go back to the bank and bank that $1,000 and i borrow that and spend it at your shop and so on and so on. Ultimately, say you bank that $1,000 ten times and i borrow and spend it at your shop nine times. So the bank ballance sheet looks like this (excluding interest).
Liabilities
Bernards shop deposits $10,000
Assets
Cash $1,000
Loans to Mike $9,000
Note the bank has 10% of its assets in reserve hence fractional reserve banking.
Apart from the fact that the bank cannot pay you if i cannot pay the bank the really BIG problem is that total real (Fiat) cash is only $1,000 (which has been recycled over and over) and i, Mike, have to find $9,000 to repay those loans.
Imagine this at the national level. Total real (Fiat) cash is say $30 billion which has been recycled over and over so that it has generated total debts of $270 billion. Where do the people get the $270 billion from an actual cash pool of $30 billion to pay their debts? (and interest payments).
Can you answer that question?
Hint
This is why the world will never get out of debt.
In reality the story stopped when then bank manager said, " Piss off Mike, there is no way I'll lend you $1,000 until you can put up some collateral and demonstrate you have the ability to repay. What do you think this is, America circa 2004. We don't do ninja loans anymore."
Mike, just pointing out that your parable on fractional reserve banking is hackneyed and pointless. That FRB increases money supply is a given and has been since Medieval times. It was a significant factor in the massive increase in commerce that brought Europe out of the Dark Ages. That it is subject to abuse causing periodic debt crises should also be a given on the MB of a site supposedly offering an informed discussion on economic events. Your story, which pops up frequently on the net ,looks ridiculous in this context.
FRB in itself does not do the damage, it is the charging of interest that causes problems. FRB creates money thereby increasing the money supply. The charging of interest on this newly created money is why nearly every country in the world has more debts then actual money to ever repay them. Defaults are a mathmatical certainty the moment you stop increasing your debt. You can talk about reducing debt all you like but all this does is put more pressure on the money supply.
The ECB throws Italy and Spain to the wolves The European Central Bank has abandoned Italy and Spain to their tortured fate. http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/86828… and those bank shares Bank shares crashed in Madrid and Milan, with Intesa Sanpaolo down 10pc and Italy's MIB index reduced to its knees with a one-day fall of 5.2pc. Share trading was suspended at a string of bourses across Europe.
I have been reading with interest - you clued up guys have to make your mind up so people like me (with a scientific not an economic background) can decide what to do a bit more easily! I really might have to go spend the cash on toys asap - nothing to lose then and I can just sit back and watch what happens next :)
Well, it would really annoy me to lose the cash we saved out of hard work (either to inflation/bank collapse, whatever). So I'm wondering whether to keep it for medium/long-term goals as intended or tell hubby he's got my greenlight to go buy all the toys he wants (or invest in something other than cash, just not sure what right now)!
Well if it was me I'd have it in cash and cash like things....but thats because I see a depression coming and cash is then king.
However in terms of toys I have been buying good quality tools for the past year....so it depends on the toys you have in mind IMHO productive toys or toy toys....
;]
Consider if we have a depression and deflation it will happen pretty quickly so getting out of something like say a house takes time you may not have. If its inflation it will take time to build so you will have time to get out of cash and into it I think. Anyway adults make their own calls Ive made mine, ive minimalised debt and have cash in bank deposits....
regards
Keep the Cash Elley...and don't panic as the back eddy of the big flush drags more and more edge of the bowl economies into its whirlpool...you will find everybody working all hands to the pumps to keep the turd afloat.....until once again the water finds it's own level.....a quick dose of harpic to rinse away any unwanted loiterers...and away we go again.
This Is Not The End Of The World as We Know It......... really more of a Global Colonic.
Looking at the FTSE250 its 8%... all FSTE 5%+, AU banks 5%....Big oil 5%+
Looking at DOW chemicals they are down 10%+ and in the last three oopsies they always fell a lot.....I assume the markets are deciidng in a recession no one wants chemicals.......maybe DOW is worth watching as an indicator...they have larger than normal trading volumes as well....
http://www.google.co.uk/finance?q=NYSE:DOW
Im going digging for companies similar to DOW to see how they are doing.
regards
It's Friday...YA-<<:)...A header in one of Bernards Articles/posts really struck me this week.....
"China has no Fear" and I thought ...WTF...? turned out to be something or other about a manatee giving out revised credit ratings required or not...or somesuch uh...anyways in honor of our new found best comrades.
An Italian, a Scotsman and a Chinaman, are hired at a construction site. The foreman pointed to a huge pile of sand. He said to the Italian, 'You're in charge of sweeping.' To the Scotsman he said, 'You're in charge of shoveling.' To the Chinaman, 'You're in charge of supplies.' He then said, 'I have to leave for a little while.. I expect you men to make a dent in that pile of sand.' When the foreman returned after a couple of hours, the pile of sand was untouched. He asked the Italian, 'Why didn't you sweep any of it?' The Italian replied, 'I hava no broom. You saida to the Chinafella he wasa ina charge of supplies, but he hasa disappeared and I no coulda finda him nowhere.' Then the foreman turned to the Scotsman and said, 'And you, I thought I told you to shovel this pile.' The Scotsman replied, 'Aye, that ye did laddie, but ah could nae get meself a shoovel. Ye left th' Chinese gadgie in chairge of supplies, but ah couldna fin' him either.' The foreman was really angry and stormed off towards the pile of sand to look for the Chinese gent. Just then, the Chinaman leapt out from behind the pile of sand and yelled, 'SUPPLIES!!!
http://historysquared.com/2011/08/03/europe%E2%80%99s-debt-bust-could-t…
John Mauldin, author of “Endgame: The End of the Debt Supercycle and How It Changes Everything,” and author of the free newsletter “Thoughts from the Front Line,” says Europe is the one thing that keeps him up at night.
- Italy’s interest rates are higher than the growth rate of the economy = Ponzi schem
- Must roll over $600 billion in loans over next few years
- Government debt is the biggest bubble in the world
- Stocks drop on average 40% during a recession
- Cash is a good position, as it gives you an option to buy at depressed prices
Which interest rates is he referring to? Aren't ours higher than the growth rate?
Indeed:
update Asia joins the pool party...10min ago http://www.reuters.com/article/2011/08/05/us-markets-global-idUSTRE7725BC20110805
It is apparent, listening to the US media for years - in most cases it turns out the situation is worse then experts are predicting.
About jobs:
http://articles.moneycentral.msn.com/learn-how-to-invest/The-real-unemp…
Even the bullish Tony ALexander sounds a bit worried
This week we have seen vehicle registrations data showing things flat to negative in July, a completely flat jobs report for the June quarter, flat growth in consents issued for non-residential buildings, and still slightly falling consent issuance for new dwellings. Its hardly awe-inspiring stuff and it means that our economy is still not necessarily in safe territory and it will be interesting to see how the new turbulence overseas affects our sentiment
Surprise Surprise TOny! I wonder if he still sees house prices "edging higher"????
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