90 seconds at 9 am with BNZ

90 seconds at 9 am with BNZ: Qantas ordered to resume flights later today; China says 'can't rescue' Europe; MF Global in crisis sale talks; Chinese bid for Pike River

31st Oct 11, 9:01am 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 early this morning that Fair Work Australia has ordered Qantas to resume flights.

This follows Qantas' surprise decision over the weekend to ground the entire airline to force the end of a long-running industrial dispute. See more here at SMH.com.

Stock markets are braced for a slump in Qantas' share price and the potential for a ripple effect through much of Australia's tourism sector, although the imminent end to the grounding may limit any damage.

The grounding was costing Qantas A$30 million a day. It wanted to force the end to a dispute over Qantas' plan to cut 1,000 staff in Australia and to outsource operations to cheaper countries. This is all part of a growing move to outsource services, as well as manufacturing in a globalised economy.

Meanwhile, China's Xinhua news agency issued a commentary over the weekend saying China could help Europe, but was not able to save Europe on its own. Europe's enlarged bailout fund needs China as an investor to help recapitalise European banks and buy bonds from struggling Southern European governments. See more here at Reuters.

Also undermining confidence in the European rescue plan agreed last week were signs that bond investors are still very reluctant to buy Italian bonds.

An auction of Italian bonds saw yields on 10 year bonds rise to a record high over 6%, which makes it much more difficult for Italy to keep servicing its very high debts. See more here at BBC.

In the wake of rally on global stock markets last week, doubts emerged over the weekend about the details of the rescue plan and whether it can solve Europe's deep structural imbalances.

Meanwhile, there there are concerns this morning about US futures brokerage MF Global. Its share price collapsed last week after it disclosed it had US$6.3 billion worth of European sovereign bonds. It has borrowed money from Citigroup, Bank of America and JP Morgan. MF Global was in urgent sale talks over the weekend aimed at avoiding a collapse as counterparties and clients worry about the safety of their money. See more here at Reuters.

Back closer to home, Stuff reported that Chinese state owned Shanxi Coal and Solid Energy were expected to bid for Pike River Coal. This is all part of a broader trend of China investing in commodity producing assets around the world as it tries to diversify its huge foreign reserves away from US and European bonds.

The New Zealand dollar was firm over 82 US cents this morning. See BNZ's currencies commentary on our site here.

Also, Interest.co.nz extends its condolences to the family and friends of Roger Kerr, the executive director of the Business Roundtable who died over the weekend after a long battle with cancer. Roger was a contributor to Interest.co.nz and a passionate and principled supporter of free market policies over many decades.

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33 Comments

by Andrewj | 31st Oct 11, 9:05am 1320005149

The two halves of the eurozone are locked in a broken marriage One by one, the democracies of Southern Europe are being broken on the wheel of monetary union.

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/88586…

by Kunst | 31st Oct 11, 9:09am 1320005377

We all know by now the standard-issue worry about China — too much debt-fueled building too fast, raising the risk of a hard landing. There’s an additional wrinkle to the story, too, one that might be more worrying, as it has a bit of the feel of the subprime mortgage debacle that took down the global economy just a few years ago.

We’re talking about a large, off-balance-sheet world of debt, China’s “shadow banking” system, which has grown to make up about 22% of all new financing in China, Barclays Capital reports.

http://blogs.wsj.com/chinarealtime/2011/10/26/chinas-shadow-banking-system-the-next-subprime/?mod=google_news_blog

by Andrewj | 31st Oct 11, 9:11am 1320005515

So this is what will happen when the IMF get hold of us, after JK has sold all our assets.

>>>>>>>

Yes, Greece has gained debt relief: €100bn (£87bn) if pension funds "volunteer" to join banks in accepting a 50pc haircut. This will leave Greece with a public debt of 120pc of GDP in 2020 after nine years of depression, if all goes perfectly.

The latest job losses have been in health care and schools, a foretaste of what will happen once the EU-imposed guillotine drops after this month's elections.

by steven | 31st Oct 11, 9:36am 1320006989

So it needs to be a 75% cut then cant go past 60% GDP and stand a chance of recovery......quite why funds volunteer to take losses of this scale is beyond me....so much for democracy....

regards

by Nicholas Arrand | 31st Oct 11, 9:15am 1320005713

This is bigger than QANTAS. It's a pivitol point for the whole of Australian business. If the unions get their way here, the wages environment in Aussie... will explode. Can Australia afford blanket bombing of wages and conditions demands in the current economic environment? I doubt it. It will be interesting to see how this lot is managed. Qantas management cannot be allowed to fail, either as a company or as representative of other all other Aussie businesses.

by steven | 31st Oct 11, 9:39am 1320007189

Not being up on this story, but how will wages explode?

I can see Quantas wont be able to make savings......but it keeps OZZies employed.....if they dont have jobs they dont buy air fares....I guess the Quantas board is too stupid to see this on a macro scale........

oh wait but markets are rational.....In a pigs ear they are....

regards

by Anarkist | 31st Oct 11, 10:34am 1320010455

"oh wait but markets are rational.....In a pigs ear they are...."

Steven, markets can't logically be rational, because they're not even sentient, let alone intelligent. They're just rule based systems which dictate how resources are allocated, and even markets with good rulesets wouldn't be rational either though, because humans are fundamentally irrational. Rational just means "in proportion to". And humans are fundamentally incapable of rationality. This applies to politics and science equally well as it does to finance.

" At Caltech, Antonio Rangel is looking at how the brain lights up when various problems are posed to subjects. It turns out the problems related to large losses affect different parts of the brain than problems that seem, from a probability standpoint, to be nothing more than a reflection of problems that look at the potential for large gains. This might provide physiological evidence to support the irrationality observed by many in behavioral economists."

http://www.creditwritedowns.com/2011/02/why-are-we-irrational.html

The virtue of anarchism is that it advocates for society to be structured in such a way that the impact of the irrationality of others is minimized to the greatest extent possible.

by Anarkist | 31st Oct 11, 10:54am 1320011666

Also this little anecdonte about fines for tardiness of parents dropping kids off at an Israeli day care centre, pulls the rug from under the premise behind the National Party policy which fines parents for their children's truancy. The cases aren't exactly the same, but the principle underlying the behaviour is.

"A few years ago, they studied a day care center in Israel to determine whether imposing a fine on parents who arrived late to pick up their children was a useful deterrent. Uri and Aldo concluded that the fine didn't work well, and in fact it had longterm negative effects.

This experiment illustrates an unfortunate fact: when a social norm collides with a market norm, the social norm goes away for a long time. In other words, social relationships are not easy to reestablish. Once the bloom is off the rose — once a social norm is trumped by a market norm — it will rarely return."

http://www.npr.org/templates/story/story.php?storyId=19231906

by Andrewj | 31st Oct 11, 10:58am 1320011936

Anarkist, you may enjoy this, I ordered of Whittcouls but it was more expensive and slower than Amazon

http://www.amazon.com/Everything-Obvious-Once-Know-Answer/dp/0385531680…

by Malarkey | 31st Oct 11, 11:11am 1320012717

Absolutely right.

A few years ago, I tried to order a book from Whitcoulls. They told me it may not be obtainable, but if they could get it it would take months, and would cost ~$250. So I called another big retailer and they said the same thing, only it would take even longer, if they could get it, and it would cost $300! So I called another retailer (which I think is now gone from the NZ market) and they said they couldn't get it then hung up in my ear.

So I bought it online from a US retailer. It cost me ~NZ$113 delivered via express courier. That was on Saturday evening. When I came home from work on Monday afternoon (or possibly Tuesday afternoon, I forget) the book was on my doorstep.

Why would anyone waste their time trying to buy such things locally?

by cam | 31st Oct 11, 12:33pm 1320017612

I think that is a huge business opportunity for someone here.

Why don't the local sellers just use Amazon or whoever if they need to get a book for someone and clip the ticket on the way through.

Too simple??

by Anarkist | 31st Oct 11, 11:53am 1320015233

hey Andrewj,

Thanks for the recommendation. But I'm rather averse to academics, wishing to move from scientific research into policymaking, because I'm heartily sick of well-meaning "experts" meddling in the affairs of others, because they have an insatiable urge to test their newest pet theories on a querrolous public often with devastating results, whether its social scientists, politicians, policy makers, government bureacrats, scientists, or economists. I'm just about ready to go postal, I'm so sick to death of it. I like the thrust of the passage below.

And, finally, it does seem to me that behavioural economics could easily fall into the same fallacy of expertise that standard economics fell into - the fallacy that social scientists can accurately predict the messy chaos of human behaviour. http://www.politicsofwellbeing.com/2010/08/dan-ariely-and-behavioural-economics.html

by David George | 31st Oct 11, 9:45am 1320007505

Well I think Qantas directors are complete dick heads. They just gave the CEO a 71% pay rise and are planning on shafting their Aussie workers by shifting parts of the company to Asian subcontractors. Any surprise the staff are upset?

This is so typical of western executive level management, bloated salaries and bonuses while the local workers jobs are off-shored or immigrants brought in to lower wage rates.

The CEO of the worlds biggest bank, Industrial and Commerce Bank of China has an annual salary of $150,000, maybe it would be better to offshore the management.

by Nicholas Arrand | 31st Oct 11, 9:56am 1320008201

The Qantas Board, kiwidave, might be rewarding Alan Joyce for exaclty what he is doing now? Cutting staff; removing archaic work practices and streamlining the company for the future. The Board may have decided that without employing Joyce and asking him to impliment their ideas, that Qantas is finished? Then, 100% of Qantas employees might have....no pay and no work practices to negotiate over.....

by David George | 31st Oct 11, 10:11am 1320009088

You could well be right, Nick, but it's going to make the job of streamlining the company much more difficult when you add fuel to the fire by upping the CEO pay while everyone else gets downsized. A dumb move IMHO.

On the broader issue - executive and directors remuneration - I think it has got out of control. I have had a little bit to do with upper level corporate management over the years and, despite the high opinion they hold for themselves, the ones I've met were nothing special to say the least. Arrogant, unintelligent and woolly thinkers in the main.

by Nicholas Arrand | 31st Oct 11, 10:25am 1320009935

Here's the Board's exit line " Sorry we upset you, workers. We've 'fired' that nasty little Irishman who caused you so much grief. There....happy now? Let's all us Aussies get back to work"...and Alan trotts off ,'chastened', with his X$'s in his account....job well done. Trust me. $5mio to do the job Joyce does is not much ( very few people can do what he does at that level of intensity. It can and does phyically knacker people who are less able). Regardless of whether it's too much or not, it's what the Board offered and what he accepeted to do the job.

by steven | 31st Oct 11, 11:08am 1320012517

2 things..

1) All airlines are "finished" they wont survive the twin problems of expensive fuel and constant busts and aenemic short term recoveries....that is the post-Peak Oil future. No one will be buying multi-million dollar plane sin teh next decade, on teh scale of today anyway....so Boeing and Airbus and also bust long term.

2) Macro impact....when Quantas makes many of its staff un-employed it impacts the Govns costs upward on WINZ payouts and lost PAYE it also means these consumers no longer consume. When many companies like Quantas do this we end up in the mess we are in now....

regards

by Kate | 31st Oct 11, 12:12pm 1320016322

I agree Nic, it's bigger than QANTAS. But I think it is 'bigger' becuase it exemplifies a worker's fight against the ideology of globalization. This ideology has been described as having six core claims:

1. Globalization is about the liberalization and global inegration of markets

2. Globalization is inevitable and irreversible

3. Nobody is in charge of globalization

4. Globalization benefits everyone (..... in the long run)

5. Globalization furthers the spread of democracy in the world

6. Globalization requires a global war on terror

Your argument has the characteristics of claims 1-4.

But I wonder whether it is useful that these claims continue to be challenged - as the problem I see with accepting globalization as inevitable is that in accordance with Marx's labour theory of value - the only way capital can remain competitive is to constantly reduced the cost of the labour component of its goods/services. Previously economisst largely discounted Marx's theory on the basis that technological innovation was a principle means by which business/capital remained/gained competitiveness. But the continued trend to offshore jobs to lower wage economies tends to prove that assumption false.

It all boils down to a moral/philosophical argument - should we strive for the equalisation of labour rates the world over - as this is where globalization takes us.

by steven | 31st Oct 11, 12:57pm 1320019073

2) fails because globalisation is a complex function which requires and needs energy on two counts.....to be complex and then to actually move the something....so when energy supply goes into decline we can no longer have increasing complexity we have to be simpler and local.

3) I would disagree that there is no one as in charge...it may not have a formal structure and a "buck stops here sign", but its definately manipulated.....so its controlled....and this follows on that 1) isnt true. As an example I want some special knives for a woodworking tool I have, they are $45US is the USA but $250NZ here, Amazon wont deliver them to me here due to "agreements".....

4) I dont think it does, depends on the term "everyone" of course....it doesnt meet my one....if only because of teh damage to the eco-system and exhausation of raw materials we will see in a generation.....

regards

by Kate | 31st Oct 11, 6:57pm 1320040672

hey steven - globalization, like neoliberalism, is a socio/political ideology, not a "truth". In other words, ideological claims are not infalible ... that's the point. Whether one agrees or disagrees with the direction this now dominant ideology is taking us is the question.

Seems to me the QANTAS employees - in relation to their objection regarding off shoring equivalent jobs, at lower rates of pay - are questioning the adequacy of that ideological framework.

by Kunst | 31st Oct 11, 9:47am 1320007635

Unprecedented developments worldwide – a real danger - PM !

..and before we know it – and the worldwide financial situation is getting worse - all our so called “Mixed NZshared Assets” are been fu@#cked by desperate 51%+ foreign share holders going bankrupt also - PM.

Considering the worldwide situation PM - stop your megalomaniac spending spree and keep and maintain what’s already here to a quality standard. NZ mum’s and dad’s (your investors) are financially already stretched to the limit - or will be soon.

by 69er | 31st Oct 11, 10:32am 1320010338

I've read that Quantas made a half billion dollars profit last year, is that correct? Shareholders and management should recognise that any business is only as good as it's staff and that pissing off your workforce is not going to help grow the brand. Pissing off your customers too? Really stupid.

by Nicholas Arrand | 31st Oct 11, 10:41am 1320010882

Do you think Qantas should be in business to make no profit? $500mio return on the capital they have employed is probably tiny...better to have the money on term deposit in the bank? The days of work being 'a righ't, are over. It will become a privilige, just to have a job. Wetern labour practices are killing our businesses. Why do you think 'we' outsource our busiesses and jobs to overseas firms? Answer: Because they can do the same job for less outlay. That's what's coming to Ausralian and New Zealand workers....lower wages and fewer 'conditions, if we want to keep what's left of our jobs..

by Nicholas Arrand | 31st Oct 11, 10:55am 1320011747

PS: "The current softening of the Australian labour market appears to comprise a ‘white-collar’ jobs recession in addition to the expected ‘blue-collar’ redundancies as a result of low growth environment...."

This is coming to New Zewaland, as well...

by steven | 31st Oct 11, 1:00pm 1320019232

I think the blue collar happened some years if not decades back.....we dont produce that much here any more.....white collar is on-going, I have been watching it for 2 years now....

The low growth will turn terminally negative as our economy starts to shrink, the Q is then what do we do with all the un-employed......

regards

by 69er | 31st Oct 11, 11:20am 1320013216

I'm saying that it's a two way street. If you treat your workers fairly and with respect then (hopefully) they will respond in kind. Paying your CEO a 71% wage increase sends the wrong message to your staff. I've never belonged to a union or been fond of them as they seem to be the haven of the least worthy of workers. Yes you can get it done cheaper in Asia but whether it will be of the same quality is a different story. I've grown tired of the crap product coming out of Asia, supposedly high tensile bolts that stretch, porous castings, zero adherence to quality control or testing... I guess you get what you pay for.

by Nicholas Arrand | 31st Oct 11, 11:45am 1320014720

Do you think Alan Joyce got a 'wages 71% increase' for not doing or exceeding his job specifications? Not only that, is it even a 'wages rise' or some form of additional compesation hurdle that 'might' see his maximum total remuneration increased? I don't know. But I'd sugget that whatever it is, it for doing a better than expected job, or to compensate him for what he is going through now. And as for timing of the rise ? Is there ever a right time to announce such? I'd have thought it was part of the AGM or annual account release that's just going on now, and whilst unfortunate, has nothing to do with the actions the management is now taking. Alan Joyce has a job to do. That is implimemting the strategies approved by his Board. Together, those people see what is happeneing as being in the best interests of the firm. For without it being, even they will not have future jobs with the company.

by Gareth Vaughan | 31st Oct 11, 1:08pm 1320019703

Quite a good piece here from Michael West at the SMH on Qantas - http://www.businessday.com.au/business/your-man-is-strapped-into-the-co…

by steven | 31st Oct 11, 1:06pm 1320019610

Im sorry but I will take exception to this..."take public policy positions that were in the wider public interest" Not true IMHO.....he was a far right winger...I recollect nothing from him that wasnt biased strongly in that direction....he certainly was clear and forthright and came across as honest in his views and I value that in all ppl, but "in the public interest" is questionable.

regards

by Vanderlei Luxemburgo | 31st Oct 11, 12:25pm 1320017117

On another note, I was in Christchurch at the weekend. That container-based development is excellent. I hope it succeeds.

What has confused me about CHC for years though is, why has the council allowed so many suburban malls to be built, thereby choking to death the CBD, and also why all the stone building in an earthquake prone region?

by Kunst | 31st Oct 11, 12:59pm 1320019170

Absolutely ! Why are we going to be “Americanised” here in beautiful small New Zealand. Why not bring back charm and atmosphere into the “Garden City”, where people and visitors are experiencing something special. Now with an unpredictable financial and economic worldwide scenario - living within our means should become fashionable - and it feels so good - debt free !

Thinking small, but with big ideas - PM !

by scarfie | 31st Oct 11, 1:56pm 1320022599

I passed comment to someone is the weekend that I thought the container development looked great would likely be highly successful. Of course most professionals in the property industry in this country won't have the foggiest idea why, but I think I can see why.

Without knowing the full detail of the leasing or ownership of the scheme and on making the assumption that the area is on public land, then that public ownership is the very reason it will work. Very good research has been done on what makes a street, particularly one intended as a shopping precinct, successful. The key is that the public own the spaces between the shops. All our mall developments fall critically short in this area, and it is the prime reason they are such sterile places. Developers do of course know this, and try to imitate it, as in Botany Downs, but it can't work because the principle is still missing.

This sort of ad hoc development puts some control back with the business owners, who actually know better what works better than any designer, developer or bureaucrat.

by scarfie | 31st Oct 11, 2:07pm 1320023221

The question you have to ask yourself regarding your chosen airline, is that do you want to fly with the company that has selected its maintenance program essentially by giving it to the lowest bidder?

You probably have life insurance, but do you consider the premium when you fly? Is that 10% discount really worth your life?

At least when you drive a car, or perhaps a boat, then you are in some control of the maintenance and operation of that vehicle, not so with public transport or aircraft. You are able to receive feedback and take action accordingly.

Having worked on aircraft there is always an issue with cheap imitations of high cost components. At least with a professional and experienced in house maintenance crew these guys don't have an interest is saving a few bucks on a part that might be 'bogus'. They are also able to recognise the dodgy parts that make it through the supply chain.

I would be looking to cross off the fly list any airline that palms off it's maintenance to the lowest bidder.