90 seconds at 9 am

90 seconds at 9 am: US, European stocks fall as global growth fears return after weak European and Chinese factory indicators; NZ$ weak at 80.8 USc

23rd Mar 12, 8:58am by Bernard Hickey

Here's my summary of the key news overnight in 90 seconds at 9 am, including news that US and European stocks fell overnight as fears returned about a global growth slowdown.

This followed a surprisingly weak indication of factory orders in China. The HSBC-Markit flash PMI (Purchasing Managers Index) showed a fifth consecutive month of contraction in China and the worst month in four months. See more here at MacroBusiness.

German and French factory orders were also surprisingly weak. Job losses across Europe ran at their fastest rate since March 2010. See more here at CNBC.

US stocks were down around 0.8% in late trade, while European stocks fell 1.2% overnight for their fourth consecutive day.

FedEX shares also tumbled after the world's largest parcel carrier warned of 'sub trend' growth in parcel deliveries globally. See more here at BBC.

There are also concerns brewing again about the European debt crisis with investors looking closely at the economic contractions and big budget deficits in Portugal and Spain. Spain, which recently defied European targets for its budget deficit, is the main worry, CNBC reports.

Italian unions are also threatening a general strike against moves to liberalise labour unions. See more here at BBC.

Ireland's economy contracted too in the December quarter, reinforcing fears that concerted austerity by European governments is simply deepening the debt crisis by contracting their economies.

The New Zealand dollar stayed weak overnight around 80.8 USc overnight, having fallen as much as a cent on Wednesday afternoon after the surprisingly weak Chinese flash PMI and weaker than expected New Zealand GDP in the December quarter. See our article here on the GDP figures.

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47 Comments

by Andrewj | 23rd Mar 12, 9:02am 1332446521

http://www.golemxiv.co.uk/2012/03/the-ecb-swallowed-the-market/

by powerdownkiwi | 23rd Mar 12, 9:13am 1332447237

AJ - good link.

" Imagine a very long turd tied into a knot".

BH - "This followed a surprisingly weak indication"

Surprising to whom? :)

by Colin Riden | 23rd Mar 12, 9:28am 1332448094

Not something to read if you still want to believe in a "recovery".

by Stephen Hulme | 23rd Mar 12, 10:15am 1332450901

A very frightening prospect depicted in this article AJ.

I suspect we have a similar situation brewing here: Our local banks are forced to segregate the good mortgage assets into the covered bond pool which are repo eligible to raise funds from foreign markets.

This will leave increasingly not so good to bad assets to back local unsecured depositors.

A more disturbing factor was revealed in yesterday's GDP data - the nominal annual growth of expenditure on GDP fell to 4.84%, below the 5.46% current average cost of servicing outstanding government debt.

Inflating away debt could be over if the economy remains on a lower growth track for an extended period. This development makes real positive debt repayment costs a painful pastime for individual and collective debtors. We probably need to seriously avoid debt from here on in.

by steven | 23rd Mar 12, 10:19am 1332451148

Its the goal of the RB not to see our Govn go under aka Ireland....that means depositors are the ones carrying the can....which is fair enough as they are getting the interest, which should contain an amount for the risk premium.

Of course ppl wont see it that way.

regards

by Stephen Hulme | 23rd Mar 12, 10:41am 1332452487

that means depositors are the ones carrying the can....which is fair enough as they are getting the interest, which should contain an amount for the risk premium.

I think the risk premium is in the 10% plus range and yet the RBNZ anchors it at 2.5% for the selfish reason of enabling cheap government debt issuance to fund the rather expensive salaries of entitled civil servants and government contractors as well as the diminishing emoluments of the not so well connected.

by Augusta Funds Mgt | 23rd Mar 12, 11:40am 1332456048

There is no risk premium for prime bank deposits or govt backed debt. That is why it is generally referred to as the "risk-free" rate. Stocks, unsecured bonds, property etc is what should and does command a risk premium.

by powerdownkiwi | 23rd Mar 12, 11:50am 1332456604

That's a historical statement.

for 'is', substitute 'was'.

The general global assumption is on the way out, and that surely will be reflected in risk premium.

by Augusta Funds Mgt | 23rd Mar 12, 11:57am 1332457056

We're talking about NZ are we not? Not every country in the world is going broke. Besides, the global economy has been through plenty of tough times in the past, but always managed to pull through. You should consider being greedy when others are fearful, and fearful when others are greedy. You've got it round the wrong way PDK!! No wealth creation for you I guess....

by powerdownkiwi | 23rd Mar 12, 12:08pm 1332457704

NZ's Govt debt increases weekly, and private debt has hardly reduced, not in terms of being repayable with the ponzi-part of finance unwinding.

This is - for the moment - a global equation.

And yes, I've gotten where I am today by being counter-cyclical. still do. No need to be greedy, though. Just need to understand what wealth really is, and that's no always monetary.

by steven | 23rd Mar 12, 12:09pm 1332457773

NZ's private debt is amongst the highest in the world....So "not going broke" is like jumping off a cliff and saying its hasnt hurt yet before you hit the bottom....

Past, is the past, we never hit peak oil before.

Your idea of "wealth" is toast.

regards

by Augusta Funds Mgt | 23rd Mar 12, 1:49pm 1332463787

Read this for a sane perspective on "peak oil" Stevie.

http://www.forbes.com/sites/boblutz/2012/02/06/fulsome-fossil-fuels-and-the-peak-oil-myth/

by steven | 23rd Mar 12, 2:19pm 1332465583

It isnt sane.....it isnt a peer reviewed piece of research or literature...its an opinion of someone who is a "car guy" in far right wing mag of known dubious integrity. I mean if you want to rely on such sources for your future decisions, go for it, its your future.

Meanwhile the author listened to probably fraudalent fracking ppl who's claims are at best dubious....and then backs it up with electric cars will be there for the future anyway....so us car guys are OK!!!....ho hum.

Its at best praying......there is no real substance to his belief...its just what he wants to hear.

But lets assume for a minute the US drillers are honest....The US consumes about 24mbpd, it produces 8.....so to get to energy independance they have to have 16mbpd output just for the USA alone.

Consider what the ex-chariman of Shell says, we need 7mbpd extra per year to balance our losses from old fields.

Mexico, the US's biggest source of oil is going to go to no NET exports in a few years.....

So the USA has to ramp up gas production at 7mbpd per year....just to break even....Lets say the US does it....it buys the world at most 2 and a bit years...

That isnt much of a long term outlook is it?

The USA then has to do it every year....allowing for oil use growth that means the USA alone will be like a new Saudi arabia every year....we only ever found one Saudi and one Ghawar...in the late 1940s. So after 70 years oops we discover something so great we wont need to worry about finding any more.

besides which even if it could get to 16mbpd it couldnt do it in 2 years, probably not in a decade. And that 16mpbd would make the USA the world's biggest fossil fuel producer....ie Russia and Saudi are about 10, so 50%+ more....

So when you start to look, its clear Its absolute rubbish....

regards

by Augusta Funds Mgt | 23rd Mar 12, 2:36pm 1332466589

Stevie stevie stevie, you just cant handle the truth can you. The US became net energy exporters this year. I'll find you that article aswell. Well get you up to speed with reallity before too long.

by steven | 23rd Mar 12, 3:35pm 1332470118

If you want to reply on one really dubious piece by Forbes to make a decision on.....well funny thing you said you were widely read....go for it, after all its your business.

and like I said even if the US could get to the amount of gas claimed it then has to support the world to the tune of 7mbpd extra production every year as the rest of the world declines.

I think you mean this,

http://online.wsj.com/article/SB100014240529702034417045770686704883062…

These are finished petrolium products, or refined output, not crude imports.

"So long as the U.S. remains the world's biggest net importer of crude oil, currently taking in nine million barrels per day, it isn't likely to become energy independent anytime soon."

and you are telling me you are widley read, pity you didnt understand what you have been reading, clearly, not.

regards

by Gummy Bear Hero | 23rd Mar 12, 3:43pm 1332470626

The USA is a net energy exporter , and that trend will increase as the shale gas & oil supplies are brought into production ........ America is on the cusp of being the world's richest energy nation ( excluding solar ) ........

........ far from " finished " , the sleeping giant is set to rouse , once again ........

I guess that the USA is much 'like Madonna's career , just when you think that finally it's all over , it leaps up re-invigorated , and flops it's tits in your face ........

by steven | 23rd Mar 12, 3:48pm 1332470907

lol....its always in your face that is for sure....

The USA needs at least 9mbpd of crude imports, all it is doing is importing a large quantity of crude oil and exporting refined products...if it cant get the crude it cant export finished.

Also the fact its just a net exporter is because of a severe drop in its domestic demand.....if the economy were to pickup that would reverse....it wont of course....not much and for long.

regards

by steven | 23rd Mar 12, 3:55pm 1332471322

This is a comment on trends on a business as usual footing, quit why ppl think such exotential growth can continue is mind boggling.

http://www.energybulletin.net/stories/2012-03-20/fun-trends

just two,

"By 2015 China will be importing more oil than the United States does that year.

By 2030 China will be absorbing all available global oil exports, leaving none for the US or Europe."

Ok, 3 years away for china....clearly its hard to see this happening...

regards

by Gibber | 23rd Mar 12, 3:37pm 1332470264

http://mobile.bloomberg.com/news/2012-02-29/u-s-was-net-oil-product-exp…

Interesting that the article attributes part of the cause to decreased demand

....."

Gasoline demand in the U.S. sank 2.9 percent to 8.736 million barrels a day last year as pump prices averaged $3.521 a gallon, the highest in records dating back to 1919.

Total U.S. oil product demand fell 9.5 percent to 18.8 million barrels a day last year from 20.8 million in 2005, department data show.

“The reason we can export so much is demand in the U.S. is weak,” Cohan said. Since 2005, the U.S. has lost nearly 2 million barrels a day of total product consumption, he said

..."

And

...."

Refiners are expanding on the Gulf Coast and in the Midwest, even as unprofitable plants along the East Coast were shut. Operable capacity in the U.S. climbed 0.8 percent to 17.7 million barrels a day in December from a year earlier.

U.S. refineries in the Gulf Coast, where about half of U.S. capacity is located, operated at 88.8 percent last year, up from 88.6 percent in 2010.

“It helps keep refinery utilization rates up in this country,” Bill Day, a spokesman for Valero Energy Corp. (VLO) in San Antonio, said in a telephone interview. “Otherwise we would see what we’re seeing on the East Coast, where refineries are shutting.”"....

Now... how to reconcile such a drop in demand for oil (a fuel of the economy), with the performance of the Dow...

by steven | 23rd Mar 12, 12:03pm 1332457407

"generally" thats the problem. People thought that about the finance companies, they could get 1% above the bank rate but didnt understand or want to, that that was their risk premium....which was way too small. Ditto commercail property should be seeing a return well above 10% because it carries a huge risk....

Have a look at the Great Depression, obviously you are not well enough read to consider bank defaults a probablity simple, there needs to be a risk permium in there.

regards

by Stephen Hulme | 23rd Mar 12, 12:10pm 1332457854

Stocks, unsecured bonds, property etc is what should and does command a risk premium.

New Zealand Government stock is unsecured debt.

by Augusta Funds Mgt | 23rd Mar 12, 1:48pm 1332463691

Its unsecured, but carries a sovereign rating. Sovereign debt from a country like NZ carries a very low risk premium because everyone knows NZ is not going to default. I realise that the crazies on this site probabaly think NZ will default, but thats an argument I cant be bothered getting into.

by andyh | 23rd Mar 12, 2:17pm 1332465458

Five years ago no-one in their right mind would have imagined a Eurozone country would default. I mean, how could they, with the full backing of the European Central Bank behind each and every Euro nation? You would have been crazy to even have thought it!!!

Last I heard Greece was in default.

I won't be rushing to your company for financial advice. No doubt back in the day you were probably also a big fan of Finance companies.....

by Augusta Funds Mgt | 23rd Mar 12, 2:43pm 1332467022

Wrong unfortunately Andy, by entering the Eurozone countries lost their right to print their own money. This is why the weaker euro countries are defaulting but the USA is not. The US can print as much money as it likes, and therefore its bills will always be paid. This is the fundamental flaw with the Eurozone.

NZ can print if it needs to, and hence will never let itself default. Not that it is anywhere near default territory.

Re your unfounded stabs about finance companies, i'll leave you to make as many cheap shots as you like, we certainly dont need your approval.

by andyh | 23rd Mar 12, 3:54pm 1332471258

I rather think I hit gold with the Finance company quip didnt I? Had much of a history with Finance companies have we?

Please show me where it was considered even remotely possible 5 years ago by mainstream commentators that a Eurozone country would default. You would have been labelled crazy. Being wise after the event is rather a badge of honour with members of the NZ finance industry brethren I find........(by the way we werent talking about the US defaulting, we were talking about whether NZ might default - try to stick to the topic).

Just wondered whether you knew what Venezuela, Russia, Ukraine, Pakistan, Ecuador, Ukraine (again), Peru, Argentina, Moldova, Uruguay, Dominican Republic, Ecuador (again)...(.I could go on, but this is getting tedious) have in common?

Since I know you wont have a clue I will help you out:

a) They have all defaulted on sovreign debt obligations in the past 2 decades

b) They pretty much all had the ability to print their own money, Funny how it didnt stop them defaulting.

And your point was exactly?

Really, and you claim to have some knowledge of finance? You actually invest other peoples money?

by Augusta Funds Mgt | 23rd Mar 12, 3:55pm 1332471338

Andy, i doubt a guy like you will hit gold in any metaphorical or literal way shape or form in your entire life. Its just not in your DNA.

by Augusta Funds Mgt | 23rd Mar 12, 4:30pm 1332473454

And to answer your question, Yes I have been investing peoples money since 2001, over 11 years now, including throughout the GFC and with very good results. We have a wide range of repeat investors as a result. Thanks for asking. What do you do other than spread negativity?

by Muppet King | 23rd Mar 12, 4:51pm 1332474671

Dude you're from a professional company. No offence, but I dont think you should be having a war of words over an internet forum, its not good PR, and not a good way to attract potential clients. A lot of people who comment here I'd imagine are pretty cashed up too including myself. Again no offence meant but if I were you I would comment on an account that didn't have the name of your company...

by Augusta Funds Mgt | 23rd Mar 12, 7:32pm 1332484340

Why what are you hiding?

by steven | 23rd Mar 12, 12:16pm 1332458192

On salaries, now you are talking rubbish, Govn bonds are at 5% ish and reflect being sold on the open market. The Govn offers at say 5.2% and if 100% is sold then the buyers must think its adequate return for the risk. if tehy only sell 75% then they have to offer at 5.5% etc until its all taken.

Same with deposits, if a holder of money doesnt like the return they can move....

regards

by Stephen Hulme | 23rd Mar 12, 1:42pm 1332463329

If I am a proprietary trader at a foreign bank (the major purchasers of NZ Government Stock) I could care less about risk as the worst case scenario is I lose my job or I make a fat bonus on my risk trades.

In reality my foreign credit department arranges to finance my NZ Government Stock purchases with a local NZ bank rolling 3mth credit line probably at no more than @25 bps over OCR ie 2.75%.

I buy a range of tender stock from the NZDMO at say a market yield of 4.0%.

I have a locked in a fully currency hedged position that I can profitably realise with a minor amount of bank bill hedging to fix my short term borrowing costs until maturity if need be.

Done in billions in a variety of currencies and hey presto I am in the money for a decent bonus and could care less about the rest as it's not my money or the banks these days as they are generally taxpayer funded.

The point here is that I am competing with other dealers wishing to do the same, hence yields never really get pushed too high.

And in the real world outside NZ these trades, in say, US government bonds get funded in the repurchase agreement (RP) market .

by iconoclast | 23rd Mar 12, 11:22am 1332454968

Confusing Steven.

Depositors are carrying the can which is fair enough as they are getting the interest, which should contain an amount for the risk premium?

What do you mean?

Someone who has a mortgage and is paying it off is a depositor, and a saver, even if it is compulsory saving.

Are you suggesting a "saver" without debt for the past 20 years and paying tax on the interest income at the marginal rate of tax, is in a better position than a "debtor" who has borrowed to leverage into property over the same time period?

How do you mean that is fair enough? Explain.

by steven | 23rd Mar 12, 12:59pm 1332460765

Confusing how so? There is a consideration for a service, there are two sides to a deal/trade. You lend me money I pay it back plus interest, if you think Im a bad risk you charge a premium...there is an agreement or contract between us. If that premium is too high, I dont take it......if for you its too low you dont lend.

So the fact that depostors might lose their money is a rasik they should aknoledge and is fair enough considering they are getting a return on their capital.....

Where is the contract for my Govn to guarantee depositors money? where is my benefit as a tax payer in day to day contract terms? Now if the banks were paying for a deposit guarantee scheme OK....but the banks have said no.

So its fair enough in that there is a known contract.......depositors should appraciate there is a risk that they could loose their money and "demand" an appropriate return....if it isnt there, dont give the banks your money.

"same time period" now but bear in mind that is the past. That same 20 years in the future would be very bad for the debtor / mortgagee if as I suspect we see a 60%+ drop inhouse prices....In effect after that period you will have paid say $400k plus the interest back to the bank but the value of the property is say $150k....that is a huge loss.

regards

by Kate | 23rd Mar 12, 10:19am 1332451163

Yes great link - but this is an interesting statement:

But we have to remember a couple of things. First the bad assets have not ‘gone’. They still exist.

Wouldn't it be right instead to say that the created credit that bought these toxic instruments (e.g. CDS/CDO etc) had no real assets backing them in the first place - and so the point is they (the "assets") never existed at all.

And hence the economic "growth" attributed to them over the past decade or so wasn't growth in the real world of real assets at all?

It seems a nonsense to be referring to this debt as ever having been associated with any assets.

by powerdownkiwi | 23rd Mar 12, 10:40am 1332452458

Kate - agreed. A game of musical chairs it is - and the flight out of Europe (first to the reserve currency, then to?) is the beginning of the grab for what is real.

If debt is only partially-underwritten, and that by bid-up assets, then it is indeed a nonsense.

I figured we were about 20:1 over-claimed, but Foss reckons 100:1. Probably an academic call.

Interestingly, the problem wasn't when energy peaked - at that point by my estimation we were 19 parts in 20, behind the 8-ball. So we went through the point where we could underwrite all the 'expectation to buy', a long ways back - 1979 or 80, for the record.

Prof Will Catton, here in NZ, back then, wrote 'Overshoot'.

http://en.wikipedia.org/wiki/William_R._Catton,_Jr.

Compare that to the drivel we still see here today! There's no excuse for us - particularly our media - not knowing this stuff.

by scarfie | 23rd Mar 12, 12:52pm 1332460340

M0 to M3 might be a start at 1:63

by steven | 23rd Mar 12, 1:15pm 1332461704

No it wasnt real growth, though its probably worse in that any real growth was also sucked out via vehicles like the hedge funds and syphoned to the top 1%...I think the description of GS being a vampire squid is very apt, probably more so than the author realised.

Now we see this make believe money starting to try to attach itslef to real assets so it doesnt vapourise...so shares are massively over-valued...land well, at least 50%...commodities bloated its one huge round of "where can we put our money before it vanishes". All these gains mask the underlying unwellness of main street IMHO...which is declining. Its declining because of energy constraints and the "taxes" we pay the rich. On top of this all these assets have to collapse in value because there cannot be the return to justify the price paid....even in business as usual, which is an oxymoron.

regards

by economist | 23rd Mar 12, 9:58am 1332449884

Well, if the US or Europe manage anything more than 0% average real growth this decade I will be impressed.

by steven | 23rd Mar 12, 10:21am 1332451270

yep.....the problem is 0% isnt good enough to hold the ponzi scheme and economy together. In a business as usual good year I think 2%....the Q is what are the bad years going to be like to counter it.

regards

by Neven911 | 23rd Mar 12, 10:26am 1332451593

Sounds like the world economy has again tried to straighten itself up again from the prolonged hunch only to bang its head again on the resource limited ceiling.

by andyh | 23rd Mar 12, 11:56am 1332457015

You have it in a nutshell. I wonder how many times we have to go through the banging against the ceiling before reality dawns.

by steven | 23rd Mar 12, 1:05pm 1332461149

Matt Simmons I think said at least 3 times....we are just starting teh second....so a year or three yet.

regards

by goNZ | 23rd Mar 12, 12:34pm 1332459245

Greed has consequences doesnt it ... A meeting this morning between Ports of Auckland and the Maritime Union has collapsed.

The Union says wharfies still aren't able to return to work, despite the fact there's no strike currently on, and the Port's lockout notice is yet to come into force.

President Garry Parsloe says they've been told by the Port there are not enough ships coming in at the moment. = I WONDER WHY ? DUH

"Our people told their wives and kids they'd be back at work yesterday. They had to go home last night, and tell their families they don't have a job at the moment." = DUUUUHHH ! SO WAS IT STILL A NEAT IDEA TO STRIKE ?

Mediation is set down again for Monday.

AND THANKS FOR ALL THE DISRUPTION , GARRY

by Kunst | 23rd Mar 12, 1:09pm 1332461351

Greed has consequences doesn’t it – that is correct goNZ – again and again.

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

Increase inequality is the real issue.

by Wolly | 23rd Mar 12, 7:24pm 1332483893

MFAT to McCully.............."UP YOURS"

"Times may be tough down at the Ministry of Foreign Affairs, but not that tough.

Even though MFAT is under orders to find ways to save money, it is spending more than $200,000 flying diplomats home from their overseas postings - for a meeting.

The meeting will discuss change.

Labour says it is a waste of taxpayers’ money. The minister, Murray McCully, is keeping quiet."

by Wolly | 24th Mar 12, 6:16am 1332522997

"Performance pay for teachers will be developed by the Government, with secondary principals told by Education Minister Hekia Parata to start "sorting the wheat from the chaff".

http://www.stuff.co.nz/the-press/national/6629986/Rewards-for-quality-teachers

National's arrogance rising to the surface again. Parata is of course just out to make herself important at the cabinet table...got to make the right noises......What Parata believes John Key wants to hear is all that matters...no thought goes into the verbal garbage...it just needs to be loud and end up in the media.....................Parata gets one tick...well done...clappping at the Cabinet meeting...who is she a threat to?

by Wolly | 25th Mar 12, 2:17pm 1332638242

All aboard the JUNKET EXPRESS...

"Leaked figures targeting the country's overseas-based diplomats suggest some staff are receiving more than $300,000 a year in salaries and allowances.

Some are getting hundreds of thousands of dollars more in school fee and rental subsidies.

The figures were seen yesterday by The Dominion Post. The Foreign Affairs and Trade Ministry refused to comment and would not confirm their authenticity.

http://tvnz.co.nz/national-news/overseas-based-diplomats-perks-revealed-4794706

Tip of the iceberg folks...perks you wouldn't dream of...party time for all of them especially in the plum postings...

"A survey by the Foreign Service Association of 312 staff – or about 25 per cent of employees – found 73 per cent of members working abroad for the ministry said they were either considering returning to New Zealand before the scheduled end of their posting or resigning because of plans to cut jobs and slash allowances." stuff.co.........TUI add here!