90 seconds at 9 am: Markets accept NZ budget; paralysis in the EU; China lending slump; US trudges on; dairy prices fall

Bernard Hickey is in Wellington again today. Here's my summary of the key news overnight in 90 seconds at 9 am, including news that the New Zealand Budget has been positively received by the markets. The exchange rate held the same rate its had for the past week - TWI at 68.5 - and credit rating agencies seem happy enough.

The usual suspects had the usual criticisms, and perhaps I fall into that category - but that is not how the rest of the world sees it, or the rest of New Zealand for that matter.

The EU summit is turning out to be a serious case of 'all talk and no action' - they seem paralysed, unable to take concerted action. But Germany is reportedly threatening to cut aid to Greece. In France, the newly elected President has actually reduced their retirement age from 62 back to 60 in a stunning act of willful blindness.

Meanwhile, their economies are turning down sharply. An early measure of European manufacturing and services dropped in May, German confidence declined, and Britian's first quarter GDP was even weaker than earlier reported, and some see even the current level of economic activity in Britain as unsustainable.

Meanwhile in China, 2012 lending demand is slumping, and their government is trying to spur growth.

In the US, fewer Americans filed for jobless benefits last week. Their weekly unemployment benefit applications dipped by 2,000 to a seasonally adjusted 370,000, perhaps signaling modest job growth. Their economy is trudging along ok, but will it last, given the European slump and China slowdown? I doubt it.

US banks however reported their highest quarterly profit since mid-2007, even while overall lending activity decreased for the first time in four quarters.

Equity markets held their own overnight, but are wary. There was no recovery for commodities from their recent falls - oil and gold were both essentially unchanged, although dairy prices recorded another fall in the lastest USDA oceania survey.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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When looking back from a point in the future, I believe that the years immediately after the credit collapse of 2008 will stand out as a period of dangerous economic negligence. We have bought ourselves some time by sweeping enormous problems under the rug. Through a combination of political cowardice, economic ignorance, and false confidence, we are digging ourselves into a hole so deep that it may take generations to crawl out.

yes and no...
I certianly sort of agree on,
"Through a combination of political cowardice, economic ignorance, and false confidence, we are digging ourselves into a hole so deep"
Where I think I differ is its not economic "ignorance". In the Great Depression its arguable that they lacked the economic models and history so made mistakes. Today I think there are more than good enough keynesian and minsky models but they are ignored. In fact the economic courses being chosen have no basis of sound economics but are political mantra and we can see they are going wrong yet continue.... So "a period of dangerous economic negligence" is apt IMHO.
IF of course you just accept the GFC as an event on the continued paradgym of growth aka the Great Depression then that was a decade to recover and it was only brought out of due to WW2...we have at least at the moment a far far bigger over-hang...that has been arguably 30 years in the making. Based on 30 years it will take 2/3rds of that to get out, so 2 decades......
Throw in that if you also consider the BBs as a bubble then their passing takes us back a long way in asset prices fair value....
So yes generations to get out of, except as PDK says there is not the energy to pay back the debt we have now, ever....our GDP/economy is going to shrink at 5% ish per year where just to keep going it needs to grow at 2%....the effect of -5% I think wil be staggering.
So I hope we will crawl out but we will crawl out to something very different to what we see today....

Stay in cash, because I intuit that something BIG is heading our way. After all these years following markets, sometimes I have the feeling that I've seen everything. But not this time. Hey, would you believe the Dow could go down 14 out of 16 sessions, and people would still be complacent? There are so many potentially bearish scenarios in the wind that my head is spinning. Last night, I noted that the Dow futures were down 55 points. I can't remember ever seeing a series like this in my lifetime. As a loyal American, I'd feel better if people were scared out of their wits. What's it going to take to scare people—the Dow going down to 4000?







According the the WSJ, 75% of the American people barely have the money to live on. The American people aren't in the stock market. The stock market is almost totally dependent upon a handful of quants and their computer driven algorithmic trades. The DOW doesn't represent "the manufacturing capabilities of the United States". The DOW represents the perceived values of self-reporting corporations using mark-to-model accounting for value justification. The DOW would crash without the Fed propping it up with trillions of dollars created out of thin air. Anyway, WTF does Greece, which we are told is presently driving the direction of the DOW, have to do with the "the manufacturing capabilities of the United States"

yes....but dont a lot of Americans have their 401s (pensions) in the stock market?  so just think on what happens to BBs etc for the rest of their lives when we see a Dow down around our ankles...

I would like to see the sources/link you quote re the WSJ on the 75%. The market we serve in the US represent 31 million households representing 37% of the population which are in various stages of financial independence. The lowest cut off starta being 100,000 USD liquid assets over and above property . This is based on very extensive reseach commissioned for the purpose. That certainly does not agree with the 75% quoted.
In addition, the vast majority in this grouping have investments in the stock market.


Retail Pulls Money Out Of Stocks For 13th Consecutive Week

Must be a buy fest for Warren B then A.J., what flavor stocks you thinking he might be chomping up.

A nice crunchy Apple.

Interesting you mention gold again David. I mentioned back in the spring that it was sitting in a bullish flag pattern on a monthly chart. It is still within that pattern and the current move down could go as low the $1450 region. A bounce off that lower point in the flag/channel would present a good buying opportunity for someone waiting in the sidelines.
That point might coincide nicely with helicoper Ben's next move:-)

Only if you think we will see inflation....dumping money into a blackhole does not change its gravity well or its ability to absorb everything...
If inflation was so certain why is so much money going into German and USA Govn bonds at effectively neg rates? but anyway ppl will and ppl will be gutted I think....be my guest....

Well if it drops below that support line then it does change from a long term bullish trend to a definite bear.
I still think hyperinflation will be the outcome, although deflation in any asset that is indebted. In relation to my modification of the quantity theory of money, I have been trying to chart that but then realised a very close approximation would be debt the to GDP ratio. Money IS debt and the right side of the equation is the way GDP is measured, so all that is missing is velocity which is intangible anyway. Debt to GDP can only go up, probably parabolic at some point. M3 will likely go the same way, but I suspect that a lot of it will be hidden if possible.

Absolutely scarfie - I say that again. Under an upcoming inflationary scenario how much money is the NZeconomy and the NZpublic losing - daily ?
Why does the government not consider: http://www.youtube.com/watch?v=GXC44l942bE

"long term bullish trend to a definite bear"  I think its not a case of fundimentals, but human behaviour is ruling the day IMHO.....I would suggest the loopy right have sucessfully indoctrinated their followers with do as I say and not do as I do...canon fodder.....hence so much "wise" money isnt in gold but treasuries...
The short is I dont know how long this behaviour will play out for, but when it does finish I think it will be very fast and drop a long way, 10% of what we see now in the stock market would not surprise me. When the panic starts I think the big trading banks will simply flick a switch on their automated ultra fast trading systems and sell everything very fast....ahead of anyone else......the Q is its a game of chicken, who will stay in as long as possible to make bonuses but get out first....those left....ikky....
I cant see hyper-inflation until after the collapse....then, yes sure easily....then yes gold makes sense...but so then would property...

I wonder if you are hanging your hat too much on what happened in the 1930's?
Here is one explanation for the deflation that occurred then from Wikipedia: "As people pulled money from the banking system due to bank panics, a reverse multiplier effect caused a contraction in the money supply."
They went into the depression on a gold standard, which is contrary to our fiat money supply. This time I suspect hyperinflation causing the collapse, in which case money will be worthless. Afterall there is no physical limit to what they can print and no other option out lf the mess, so print they will. Of course it is only a temporary reprieve as this time the real disconnect is from money to resources. The lack of resources means there is no way to pay the interest (via increased production)on outstanding debts (money), so again the only option is the keep printing until they can't.


Chinese buyers default on coal, iron ore shipments-trade

Huge A.J..........

 In France, the newly elected President has actually reduced their retirement age from 62 back to 60 in a stunning act of willful blindness.
That's a big call David , do you care to elaborate?   

I t'ink I can help out here, SH.
'Willfull' = they meant to do it.  Stick a finger in the eye of the Austerity Brigade.
'Blindness' = what happens when you poke yerself hard in yer own eye......

Well he could hardly kick Angela in the goolies now could he Steven H...but I'd guess(if true)it would be the next best thing.

David, what is the rate of youth unemployment in France?  
Youth have had enough - they didn't create the need for "austerity", they haven't yet been able to participate in the ponzi programme and crony corporatist governments seemed hell bent on destroying their future along with their freedoms;
I don't know whether early retirement has the potential to stimulate youth employment but we should at least be asking the question.

The 2012 budget = natural balance a wee bit wobbly Bill - and then a crash in the end - ohh well, as long as you don't bite your tonque !

Wow...Hollande has reduced the retirement age...incredible...goes to show how socialists can be blinded by ideology.

no worse than the right....

It seems that through history we see massive events that are kicked off by a black swan event (ie the self-immoliating street vendor in Tunisia, Arch-Duke Ferdinand for WWI etc)
Is anybody's crystal ball itching at the moment? We all know that the 'system' is teetering but what do we think will get the huge turd-coated ball rolling?
(If I had to guess I would say it'll be a protester getting killed, or a Bank somewhere suddenly getting dragged under by a corporate failure)

My one itches constantly....but I bailed from shares etc 2 years ago so Im hardly accurate......
Grexit looks like it.....then Greece will default on the ECB.....there is no other option IMHO....I mean if Greece is forgiven then Ireland will put its hand up....and Spain, and latvia etc etc....it just takes the first one and the rest will see they have a better path....or their voters will....and vote accordingly........
The big Q is will the global financial systejm and hence banks freeze and then the Q is how long will the financial systems stay frozen for.....we need to eat.....hard with no money to buy....
That is ugly really, really fast....
blue or red pill?

Is anybody's crystal ball itching at the moment?
How about proceedings being taken against the perpetrators causing this global catastrophe;
They are likely fewer in number than many think.

Or a bank getting dragged under by it's own failure.
Is JPMorgan the Black Swan?
U.S. Treasury Bond Teetering Tower of Babel, Fed Stuck at 0% Forever - http://www.marketoracle.co.uk/Article34819.html
Longish read and I don't understand a lot of it but mentions JPM losses at $100B.  Conclusion mentions a rush to gold but is there enough physical?

On Dairy
To meet their rapidly growing demand for dairy China is importing vast numbers of cows, a record of 100,000 this year. A third of these are being supplied by Australian Elders International Trading who are struggling to meet China's growing cattle needs.
Fonterra are currently constructing their third Chinese farm and are planning on investing at least a further NZ$100 million on more. They have also just announced the opening of an 'innovation centre' in Shanghai to develop products for the growing Chinese market.
Indian dairy producers want an end to a government ban on the export of skim milk powder which has resulted in a build up of excess stock.
The ban was imposed last year because of a domestic supply shortage but due to good weather India now has almost 150 thousand tonnes of skim milk powder in excess of domestic demand.

This is the astonishing bit out of that link Aj
"China's revolution in agriculture has the backing of $1 trillion for agricultural investment over the next five years"
Thanks..well worth the read!...no wonder Crosers air travel tab is so high.

And the fact that India has as much milk powder in storage as we export to China, and it has a shelf life.  Hard hat time guys.


Milk quota abolition could create up to 15,000 jobs
 What happens when the rest of Europe does the same ?

I think inclusion of an extract might get more people to take note A.J. as this is worthy of extreme note......Extract from A.J.' s link above
The value of the goods New Zealand sells overseas fell $799 million in April to $3.9 billion, continuing a downward exports trend that started late last year.
The latest Statistics New Zealand figures on overseas merchandise trade show exports are now down 17 per cent year on year, and both exports and imports were weaker than expected.
When it comes to the amount of goods we're bringing into the country, the trend has been flat in recent months but rose in April by $3.7m compared to the previous year, to $3.5b.

David, you meant to say: "France's new leader reduces the retirement age from 62 to 60 in a stunningly courageous act of vision, refusing to be wagged by the tail and  reinvigorating political discourse and optimisim in his country."
AT LAST an international  leader who requires a wheelbarrow to transport his testicles! VIVE LA FRANCE.

And, of course, that cojone-mobile will need a nice tame Unicorn to pull it, lots of Pixie Liver Oil to grease the wheel bearings, and a pinch of two of Fairy Dust (applied under the Unicorn's tail in the best tradition of the racing industry) to start the whole show on its way to the Magic Money Tree which is going to pay all these bills....

Hilarious, waymad, well done!

HH - Thanks for the laugh.  As soon as Hollande was elected I went short on French financials.  So far these bets are doing very well. After this announcement I will be increasing my short bets.  I will of course pay some of it back by buying some French wine and liqueurs, all paid for courtesy of Monsieur Hollande, my socialist friend.


In 2000 France introduced as first European Country the 35 hours working week.
Also 5 weeks per year paid leave.

It is pretty easy to mock the french and their socialism, but I think they value quality of life over money, and that is really not that stupid.
To be honest I think most people would be better off in a high tax society where we get to retire at 60 and get 6 weeks leave a year. We may not get as much money in the hand a week, but then with less money around, prices would be a lot lower (especially house prices). To me as long as a certain level of health, food and shelter is achieved, the next biggest measure of quality of life is how little you need to work...
The french do take it a bit too far though with their unionism, etc.

Well you can take Sweden as an example, that in fact the loopy right are now holding up as a shining example.....which is so funny.  
The problem is such things have to be paid for, so yeah sure its nice to retire at 60...but un-realistic.  Frankly it looks so bad out there now that I will be surprised if anyone is returing in say 10 years......and yes a life balance is very important IMHO.  So I think the new French president is being deceitful....or is in-competant.....but then I doubt he's much worse than the fool he replaced.

Well at least our State workers get 5 week too.

I think that's their new redundancy package A.J. 

Andrewj I agree if you have followed the markets for several years you have to ask your self just when are they going to blowup once and for all.
Many traders during the lead up to the crashes in the late 20’s and 30’s knew the indicators were bad and deteriorating but the system kept hanging in there the traders simply reached a point where they just continued on until consensus sentiment overwhelmed the markets.
Today there is clearly a widespread belief that the “authorities” or central banks will always be able to provide a backstop which is likely to be sorely tested in the near future but who knows the timing the tipping point probably unforeseen.

which is moral hazard.....faith healing, funny that but they critique teh FEd and Govn yet are counting on it not to take losses themselves....totally amoral.

Oil futures peaked and is now clearly dropping.
The Baltic index may have done the same...

Another biggish earthquake in ChCh, M5.2 off the coast of New Brighton.
No damage likely but quite a shake.
Here's the Geonet, quake drum:


Google Trends Shows Why The Status Quo "Powers That Be" Should Be Scared. Very Scared
The volume of searches for the phrase 'Bank Run' has just hit an all-time high - higher now than even during the peak of the Lehman Brothers 'moment'.

Toscafund chief economist Dr Savvas Savouri has repeated his call from 12 months ago , that the Australian dollar will become one of the " reserve " currencies of the world , along with the British pound , and a few emerging market currencies .
...... he asserts that the $US will fall to $ 1.70 against the $A over the next two years ...
And he maintains that the Euro is grossly overvalued currently ...
..... he didn't mention the $Kiwi directly , but one surmises that it'd be revalued upwards too , along with other currencies on the periphery of the Australia-China connection ...
[ .. to put things inperspective for China sceptics , the PRC economy expands at a rate equal to reproducing the entire Greece economy , every 11 weeks ! .. ]

Gummy -hopefully you have your "NZ$cash- bags" ready and a safe place for storage then.

.... a local investor ( Peter Morgan ) claimed on ABC TV that Australian cash & equity markets are at an inflection point ..... with over a $A trillion in cash instruments looking for a higher yield ...
If the mess in Europe can be papered over , the fear factor ameliorated , expect equity markets to soar ....
[ .. I hunted through the comments section to Bernard's article in the NZ Herald ... didn't spot your comment , Walter .... were you rude to Bernard again , used some " naughty " words  , huh ? .... good man ! ... ]

Gummy - it seems to me, because the time is so uncertain, even for experts, we don’t see a lot of obvious movement in the markets until before the crash is coming – a typical “Calm before the storm” scenario. In the meantime, we need solutions in order to be well prepared and to keep a positive spirit.
I personally think the government needs to place some measures (Education programs) to assist the wider NZpopulation. I cannot believe, how we can in difficult times accept such stupid 3 national channel TV programs, full of crime and violence – daily. Programs should now be designed about positives and helping Kiwis to overcome a worsening crises.
Furthermore, I still believe the introduction of a NZGOLD$, which runs parallel to the normal currency would help enormously. People need choices not restrictions.
Bernard (team?) is still cruel to me. “He” deleted two of my comments in the past – harmless stuff, but that’s fine - a DawittBoris playing the whipping boy, but doesn’t allow others to do the same.
2nd page - NZherald

... . I differ slightly Walter , in that I think way too many Kiwis are going into universities .. we need to slash the number , and raise the university standard , to where it was ....
We require more trade course & apprenticeships .... and even slop houses such as McDonalds ought to be required to offer professional training to their staff ... ..
.. .. and bring back the youth rate , which Helen Clark stupidly scrapped , to give youngsters the opportunity of the first step onto a career ..
[ ... Burnhard is cruel to you " 50nine of Kaikoura " ... there there , you're amongst friends now .... we care ... ]