90 seconds at 9 am

90 seconds at 9 am: NZ$ up to 82.3 USc as US$ weakens after Fed's Bernanke signals extended very low interest rates to boost US economy; Europe eyes bigger debt firewall

27th Mar 12, 8:58am by Bernard Hickey

Here's my summary of the key news overnight in 90 seconds at 9 am, includings news the New Zealand dollar rose to over 82.3 USc overnight after US Federal Reserve Chairman Ben Bernanke signalled an extended period of accomodative monetary policy to try to lift a US economy that has yet to enter a self-sustaining recovery.

Bernanke said the employment market had improved, but was still not normal and continued easing was required.

He has previously pledged to keep official interest rates at near 0% until late 2014, which would mean US official interest rates had been on hold at nearly 0% for six years.

He made no specific comment about a third round of quantitative easing (QE III), but stock markets and currency markets took the comments to mean the option was still open and Bernanke remained dovish on monetary policy. See more here at Reuters.

This weakened the US dollar against many currencies, including the New Zealand and Australian dollars, given more money printing would devalue the world's reserve currency.

US stocks were up more than 1% in late trade on renewed hope for more stimulative monetary policy. See more here at Bloomberg.

Elsewhere, European stocks rose 1% after better than expected German business confidence data and after Germany signalled it was willing to consider a bigger debt bailout firewall for struggling Eurozone governments. See more from Bloomberg.

This follows rising concern about Spain's economic and budget deficit position. Its long term bond yields have remained elevated in recent weeks despite the European Central Bank's mass money dumps of the last three months. See more here at Reuters.

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15 Comments

by Rob of the North | 27th Mar 12, 9:13am 1332792806

Investing in a world of low interest rates

Speakers: Bunt Ghosh, Managing Director, Vice Chairman, Credit Suisse, William Porter, Managing Director, Head of Europe Credit Strategy, Credit Suisse Andrew Garthwaite, Managing Director, Global Equity Strategist, Investment Banking, Credit Suisse.

Key takeaways:

NEAL SOSS argued this morning on why we are going to see low rates for many years to come. So how do we allocate from here?

Garthwaite’s conclusion: Buy Growth—stocks and regions, Dividend growth, Equities in general will continue to be re-rated.

1. 8 tn of excess leverage; 10 tn more government debt than before crisis.

2. Real bond yields will remain low for a long time to come.

3. Excess liquidity should be good for stocks.

4. Emerging markets equities should trade on a premium.

5. Korea, Poland, Russia and China are favoured markets.

6. 70% of total returns have come from dividends. Keep buying dividend growth.

7. EQ risk premium on IBES is at 8%, on CS numbers is 6.1%—that is certainly enough to own versus bonds.

8. Commodities: What drives them? Global IP to rise to 3%. It appears that the market is convinced that there will not be a supply side response to higher prices—wrong... Think natural gas in the US.

Bunt Ghosh: The pressure to buy bonds will continue. So what should you buy?

1. Don't get seduced by nominal rates, focus on the real rates. JGBs, as an example, have given you a 4.5% real rate of return over 20 years.

2. Governments are going to keep driving rates lower.

3. As emerging market countries switch to consumption and service-sector-led growth, inflation will start to rise. Emerging markets countries will start to allow their currencies to rise to battle inflation.

4. So which currencies are cheap?

• Brazil has high real rates, but an expensive currency.

• The Philippines is the only expensive emerging markets Asia currency.

5. Yield gaps: Real yields in emerging markets are higher than they were some time ago (using headline, not core inflation).

6. Many emerging markets curves are far too cheap. Inflation is coming down; commodities' period of sharp rise has ended.

7. Where will the real exchange rate work for you?

Will Porter: "chasing yield" is when mistakes get made.

1. Expectation of early retirement is still widespread and they are wrong.

2. We are right in the middle of the largest sovereign restructuring in financial history.

3. Let's not forget that it was not long ago that we were trading Greece in single-digit interest rates. In a period of very loose conditions, it is an example of how mistakes get made.

4. The public sector is having to participate because the private sector is not. So if you are participating, then you are doing so at an artificial price.

5. Credit cycles normally last four years; this is has been running since 1Q09.

6. At this stage, we normally start to see corporates stretching themselves (leveraged M&A, etc.).

7. 5% of the European fixed income markets is corporate credits. It should be 50:50, like in the US.

8. 75% of European Corporate credit is held within the banking system. That is wrong.

9. The market's job is to bid those corporates to raise money away from the banks.

The world does not have a demographic problem; it is mostly the part of the world that we are most concerned about that does now. But it is important to note that Asia, particularly North Asia is fast ageing (it is interesting to note how Korea is one of the most ageing). India, Indonesia and the Philippines though are in good shape demographically.

by skudiv | 27th Mar 12, 11:43am 1332801802

TL:DR get physical.

by Henry_Tull | 27th Mar 12, 9:21am 1332793290

Hows that investment property in Queensland

THE Bank of Queensland (BoQ) has been hit by a surge in residential and commercial property loans striking trouble, prompting the board to order a $450 million capital raising to shore up the regional bank's balance sheet.

BANK of Queensland is poised to post the first loss by a key Australian bank in nearly two decades after being caught exposed to a property market bust across the tourism hot spots of its home state.

http://www.smh.com.au/business/boq-launches-capitalraising-after-91m-firsthalf-loss-20120326-1vunb.html#ixzz1qFwWgd59

by andyh | 27th Mar 12, 9:32am 1332793949

Nice link our Henry

by andyh | 27th Mar 12, 9:26am 1332793587

US consumers feeling the pinch as petrol marches higher:

http://www.cnbc.com/id/46857155

''Economists have begun to worry as well''.

Oh really? NOW they are beginning to worry?

by steven | 27th Mar 12, 11:40am 1332801645

yep....."Now" as in market forces finally notice there maybe a problem......oh wait they were warned in 2005 and earlier......and that a fix was 1 to 2 decades...but that will be ok, market forces will do it fine....now

Not so much " yeah right" as "we are screwed"

Its going to be a hard lesson, but maybe we will come out of this with a huge reality check.....and us voters might be wise or maybe burned badlly enough that we ask the ppl who want our votes some hard Qs.....and realise the mantra of Govn's are useless is only because we vote in the useless.....

regards

by economist | 27th Mar 12, 9:44am 1332794674

What Ben means is that if low interest rates for longer don't produce those 'green shoots' of that ever increasingly elusive recovery, then more QE (or QE by another name) is on the way in several months time.... (once China has confirmed its slow down and we find out the euro mess hasn't infact been anywhere near solved)....

Gee the Fed annoucements are getting just like Coro Street - you can go away for several months (or a couple of years) and come back and you haven't missed anything at all...

by Andrewj | 27th Mar 12, 10:58am 1332799126

Anyone else heard that the grape harvest is a total write off? Ive got a contract but the company doesn't want the grapes, Im three weeks behind normal and I have a hot dry site. A worker in the industry said the rot is cronic and most blocks are being by passed. If HB is this late and cold, the South Island will be buying sugar by the truck load.

by andyh | 27th Mar 12, 11:04am 1332799460

No. Here in Tasman yields are said to be lower but the growers sound happy enough.But then we do make the best wine in the country so yield isnt necessarily the be all and end all.

by David B | 27th Mar 12, 3:29pm 1332815382

Here in the Tasman district? Don't tell me you've dropped out and now live in a hippies commune somewhere past Colingwood? Oh dear, oh dear, oh dear. lol. That explains a lot.

by Plutocracy | 27th Mar 12, 5:17pm 1332821827

Haha the pillock himself speaks! Fresh from agonizing for days over what population growth is measured in... Ready to make some 'witty' remarks you probably spent all morning working on. TBH I'm surprised you could even read Andy's post!

by goNZ | 27th Mar 12, 3:02pm 1332813772

HB late and cold Aj ? - check with global warmists on this blogsite for their latest theories based on assumptions ( or Ken Ring at a pinch)

by SimonP | 27th Mar 12, 4:06pm 1332817585

Blame the La Nina weather pattern for the extra cloudiness in this part of the world. La Nina also has a net cooling effect on a global scale, but it wouldn't surprise me if this year ends up as one of the warmest on record regardless. I was talking to a Canadian from New Brunswick last week, normally it is still -25C at this time of year but it is currently +25C. That too could be a local anomaly.

by Wolly | 27th Mar 12, 8:28pm 1332833306

Bernanke consequences....not a pretty future!

"If the American economy begins to recover to the degree that businessmen are willing to borrow and bankers are willing to lend to them, the monetary base that the FED holds will at long last push up consumer spending by the employees of businesses. The M1 money multiplier statistic will increase as people spend this money on customer goods.

At that point, the FED will have to decide how to offset this in order to head off major price inflation. If it does not sell assets, mainly Treasury bonds and Fannie Mae and Freddie Mac mortgage bonds, it will face mass inflation (15% to 25%). If commercial banks still lend, the near tripling of the monetary base in 2008-10 will produce a near tripling of consumer prices. That will be the hurricane."

http://www.marketoracle.co.uk/Article33794.html

All of which seems to explain why Bernanke is dead keen on making sure there will never be a recovery....

by Wolly | 28th Mar 12, 7:15am 1332872112

70 at 7am!

"THE Bank of Queensland (BoQ) has been hit by a surge in residential and commercial property loans striking trouble, prompting the board to order a $450 million capital raising to shore up the regional bank's balance sheet.

The stock was put in a trading halt today as BoQ’s chief executive Stuart Grimshaw revealed that the bank would record a $91 million after-tax loss for the first half of 2012. The statutory loss follows a $222m normalised underlying profit for the period.

The Party is Over

Turn out the lights, the party is over. Australia is headed for one hell of a hangover in the wake of residential and commercial real estate busts. Retailers will be especially hard hit as consumers throw in the towel on spending and store owners struggle to keep up with absurd labor costs and excessive lease payments or property taxes."

http://globaleconomicanalysis.blogspot.co.nz/

And just offshore is the property speculators haven....NZ....a land that prudent financial managment forgot about....just ask the govt and the morons who had been govt...and the fools wanting to be govt....and the RBNZ which plays whatever tune the bankers demand....lately that tune has changed back to 95% LVRs..."covered Bonds"....cheap credit....zero real savings...