90 seconds at 9 am: Dow down

90 seconds at 9 am: Dow down 1% as global downturn squeezes profits; Euro leaders pledge emergency relief to Spanish banks; Greece needs debt relief...again; NZ$ at 79.4 USc

11th Jul 12, 9:01am by Bernard Hickey

Here's my summary of the key news overnight in 90 seconds at 9 am, including news the Dow closed down 1% after weaker than expected sales results from companies exposed to a deteriorating global economy.

Applied Micro Devices, which makes chips for computers, reported a surprise fall in sales and Cummins, which makes engines for trucks and bulldozers, reported weaker than expected sales.

Analysts are now forecasting profits for S&P 500 companies will fall 1.8% in the June quarter, the first fall since the global economy began emerging from recession in 2009. See more here at Bloomberg.

The slide in late US trade had followed some strength on European stock markets after European leaders announced the fast-tracking of emergency support for Spain's ailing banking system and fresh talk the European Central Bank could resume bond buying to drag down Italian and Spanish bond yields. An emergency tranche of 30 billion euros out of a 100 billion euro package will be paid this month to Spain. See more here at The Telegraph.

The Spanish 10 year bond yield fell to 6.82% from its highs of over 7% earlier this week. Italy has also warned it may need a bailout from Europe, which is an ominous new development given Italy has 2 trillion euros of debt. See more here at Reuters.

However, the euro continued to weaken as politicians seem to be one step behind the market's curve at every step and the fundamental problems of a single euro currency zone with 17 different budget policies and 17 different banking systems remain unresolved and unlikely to be resolved any time soon. One Financial Times commentator, Wolfgang Munchau has said the Euro-zone crisis will last for 20 years.

Worries about Greece are also returning with talk it will need its own emergency cash injection within weeks and a relaxation of its bailout conditions.

Meanwhile, in China, annual import growth slowed in June to 6.3%, which was weaker than economists' expectations for growth of around 11%. Export growth also slowed to 11% in June from 15.3% in May, suggesting a sharp slowdown of both the domestic and export sectors of the world's second largest economy and New Zealand's most important trading partner.

All these worries about a global economic slowdown and aversion to risk saw the New Zealand dollar ease back to 79.4 USc from over 79.8 USc yesterday. However the Kiwi remained near record highs vs the euro of 64.8 euro cents as the euro continued to weaken on fears about the Euro-zone debt crisis.

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23 Comments

by scarfie | 11th Jul 12, 9:13am 1341954796

I have demonstrated the effect interest has on the money supply through (M.V)+i=P.Q, here is a take on what leverage does on top of this:

http://www.zerohedge.com/news/guest-post-global-economy-its-all-about-increasing-leverage

If production reduces it become a third impact in the same direction.

by Andrewj | 11th Jul 12, 9:15am 1341954956

China exports yet more excess capacity to crippled West

China’s trade surplus jumped 43pc to almost $32bn in June. Imports for domestic consumption fell sharply.

This is exactly the sort of development that I alluded to in yesterday’s blog, subject to all the usual health-warnings about a single month’s data.

It implies that China is no longer consuming enough of its own output. It is exporting excess manufacturing and industrial capacity – with an undervalued currency – into a world that is already grappling with a deep secular slump.

http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100018516/c…

by steven | 11th Jul 12, 12:16pm 1341965771

over-capacity = anti-inflation...and a protectionalism swings in less places to sell will force down prices further in the rest.

regards

by Christov | 12th Jul 12, 12:52pm 1342054353

Spot on A.J. even worse is they telegraphed it a long time back...as was discussed here middle of last year...!!

Here's the thing, if you can see it, and I and a host of others here can see it, why do those who have needed to ..see it coming....either not seen it, or believed it was an unavoidable consequence of trade with, those who have advantaged themselves through the manipulation of their currency....? Two years back I said a return to protectionism was a distinct possibility...I still think so, I just think it's a spreading distinct possibility.

You know when I was about twelve or so reading Superman and Batman and stuff like that , I knew, even then I was being indoctrinated into the thinking of the "Free West "( a contradiction in terms I know), but that said, All Commies were the bad guys, all Commies were to be vilified or rooted out and shot at the earliest convenience.........I was OK with that at the time as I didn't realize being truly free came with a price tag......it's still my prefered ideology for all it's shortcomings....but and here comes the but.....

We now live in a so called democracy (NZ) who are systematically selling the interests of N.Z. to Communists.....pandering to the economic wishes of Communists who have little respect for our laws....fostering relationships with known industrial fraudsters and copiers, who are all but sanctioned by their Communist regime,....falling all over ourselves to show approval of long term ties with Communists that have clear views on the folly of so called Democracy...in fact they hold us in contempt were they the slightest bit honest about it.

This is what we have come to......WTF was the cold war about...?.....Dear Communists we hold true to the ideology of a Democratic Free West for as far as our $ will take us, feel free to come and over inflate our land and property untill we ourselves can not afford to compete.....feel free to have the process of our laws overlooked in your favour in fear we might offend your potential trade sensitivities.

Feel free to look the other way while your fraudulent industries launder piles of undervalued cash through our pissant Banking systems ensuring you have no export competition.......

Feel sick yet...?, I know I do....

Key ...if you think the Communists only interest is in our valuable trade relationship , and further that those fostered trade relationships have not affected policy makers ideological views....then you sir are a bigger idiot than I give you credit for.

Only good Commie....is a what Commie...?.can't recall, it all seems so normal now.

I give em one thing, they know our Religion is the $, and they know how to exploit it.

by OMG | 12th Jul 12, 1:42pm 1342057349

Further to that - the 'commies" have forged such a strong relationship with the mafia/tongs that the distinction has disappeared. I also agree that they are laughing up their sleeves at us.

by iconoclast | 12th Jul 12, 1:55pm 1342058143

Christov: agree with you but only 80% .. I assign 20% responsibility on the blind fools on the other side of the"transactions" (for want of a better word)

We had a tv segment on our news last week discussing property in Sydney, interviewing a room full of buyers of high rise apartments, off the plan. All the buyers were asian, all young, in their 20's, from China, Hong Kong, and Singapore. When interviewed, they ALL said property prices in Sydney were half the price they would have to pay in their home country. That's right. Half price. And Sydney would have to be one of the dearest property markets in the western world, that hasn't been affected by the GFC. If Sydney is half price, what is Auckland when you take into account the AUDNZD currency differential.

You know and I know what is pressuring the Auckland property market. It isnt a secret.

It is politically incorrect to discuss it. Olliver Newland knows it. But he won't say so. But he recommends getting "in to it". Watch the articles on Interest.co.nz, NBR, Herald, Stuff. They get into an analytical frenzy over periodic announcements from Barfoots, QV, Roost, the Banks, RealestateNZ, yet you will never see any analysis on what is causing Auckland property prices to reach record levels when no other country is.

A good example is todays article by BH agonising over the merits of whether to Fix or Float. And look at the number of responses. That's like having a platoon of highway-cleaners driving up and down the highways sweeping up the road-kill.

by Christov | 12th Jul 12, 2:20pm 1342059606

Cheers iconoclast.....I have no dispute that the local sector has had it's part to play in "the Frenzy" ..but I believe , in more moderate areas of Auckland the panic is driven by fear and desperation of those not wanting to "miss out".

The point of my rant has more to do with a shift in ideology, a shift in values, a rat heap mentality if you will, where the highest bidder may not have once even been able to obtain a tourist visa.....it is naive of many to think they ( the Communists) are not aware that the weakness of the "free Markets" is the very thing that underpins it's values...the dollar.

I am sure Bernard has sighed many times when I've talked about a return to protectionism because it probably makes little economic sense in terms of extricating the U.S. from their deficit poosition.....but I believe it will come about by other means, including a growing awareness of many Americans that their National identity has been somehow devalued by their dependance on Communist China...that's right Communist China.

We for our own small part have played a major role( thanks Fonterra) in normalising relationships with Communists....from the very top the speak is always of seeing our economic future tied to the Communists.

Did I get that right John Boy...? or is it far more palatable to replace the word Communists with China....?

But they are still Communists John ...are they not..? or are you hoping to change all that ...you dumb SOB.

by iconoclast | 12th Jul 12, 2:39pm 1342060771

Christov: you're quite right .. I have been a bit closer to the action .. in the 1990's there was a certain construction company that was or is the forerunner of a certain building company that is close to the top of the NZX hit parade. They went international in the previous century, particularly in china, and got taught a serious lesson, cleaned out by the very apparatchiks you are talking about .. and said construction company pulled out with their tail between their legs .. the vig and under the counter graft demanded far exceeded any possible profit that could be made according to their submitted quotes .. almost broke them .. now the question is .. I know it .. they are represented on the roundtable .. they know it .. is Fonterra? does anyone talk to one another .. do you think Fonterra went and sought out the guidance and advice from the experience of these people .. they're not too far away over the rubicon ...

by Christov | 12th Jul 12, 2:50pm 1342061423

Thanks for that iconoclast a real blast from the past........and you've got me wondering about who is not talking to whom......or is it all just wide eyes n gravy now..... ?

by Andrewj | 11th Jul 12, 9:44am 1341956696

I’ve been going to budget advice meetings, my wife saw them advertised somewhere locally so we trekked along to see how the good old US of A, is really doing. It’s a sobering three-week course and we are in the third week, meeting every Monday and Tuesday.

Tonight we had a bankruptcy lawyer come along to give advice (she has no credit cards, she cut them up 6 years ago). It was an interesting meeting with mostly middle class participants. They have chapter 7 and chapter 13 available and if there is a huge debt (1 mill+) they bunch them together and call it chapter 20. She has three people a day come to her for advice on bankruptcy, she told me someone goes bankrupt in the USA every 15 seconds, hard to believe but a quick Google search and

http://www.bankruptcylawnetwork.com/one-american-is-filing-bankruptcy-every-15-seconds/

(1.5 million last year )

She said this is moving to one every 12 seconds this year. If you foreclose on your house you cannot get another mortgage for 4 -9 years, chapter 7 its two years and for chapter 13 its one year. If you foreclose on your house and you have a second mortgage, they will go after you. The worst banks were Chase, and two others I can’t remember, they often take a 1k credit card debt and add lawyers fees etc., and make it into a 4k debt, and chase you vigourously.

She told us stories of people taking out interest free loans on computer equipment, TV’s etc., miss one payment and they lump interest and penalties together that are often more than double the cost of your purchase. If you pay by check in the last week sometimes the cheque will get cashed the day after payment is due, amongst the worst business for doing it - electronic firms.

She told us a wave of bankruptcies is on the way, 2013 is going to be rough because of the credit card cycle,adjustable rate mortgages, and other factors to do with house loans. Next year will see crunch time in the USA and it won’t be pretty. Houses she thinks, and the tax accountant running the course agreed, will see another significant drop in prices (at least another %20).

She talked about the huge problem with student loans, she said there is lobbying in Washington to try and get the problem dealt with, the longer it goes on the worse it's going to be. No way is the student debt going to be paid back, they will get a fraction, they will somehow allow people to default and that’s going to be significant for Universities. We had several people, one a 50 year old woman working as a caregiver, with over 80k of student debt. They call it the big pink Elephant under the bed. They owe more on student loans than credit cards in the USA.

http://www.skillshare.com/about

The biggest cause of bankruptcy is medical bills, something is very wrong with healthcare, a nurse talked of the corruption in disability claims in California, its chronic. Medical insurance premiums have doubled in the last ten years and are now up to %20 of the average income.

We had an interesting question time with a range of people from doctors to laborers. Housing was the main problem, many had purchased 500-600k houses that were now worth 250-300k and they are underwater, with an extra 28 k of credit card debt on top. Interest on credit cards is %18, interest on car loans is %12. We have been discussing consumer debt it was about 50k a household, due to default its now about 16k a head average.

We had a talk amongst each other afterwards, the problems seem insurmountable, local councils broke, unaffordable healthcare, no jobs, student debts, government spending, immigration out of control, crime, drugs, cost of living inflation and so on. Most felt that for America to get out of this without civil unrest, will take a miracle. There was a Texas philanthropist in the group trying to help people with out of control debt, we had a Lawyer from Hong Kong who was looking at taking some of the budgeting ideas back home.

This is a letter the tax account running the course sent me.

>>>

This is a heady problem. Macro-economics are so complex. But at the risk of oversimplifying USA, I think we've fallen prey to Keynesian economics which believes you can borrow (consume) your way through slow economic times, stimulating the economy enough to "outgrow" the problem. I follow the logic, but it leads to a hazard of spiraling-debt lifestyles at personal, corporate, and governmental levels. The temporary result has been USA's denial of gravity for the past 30 years (spanning Democrat & Republican presidents alike...Clinton benefited most obviously by the Keynesian model...although I personally think his was more the result of timing than strategy) until debt is so fantastic as to potentially topple the most powerful economy in the modern world.

I also think the failure to protect our manufacturing base has propelled USA into an artificial "financial economy" much like Singapore. Since we make nothing but balloon money, we are in a precarious place for the coming 2 decades.

>>>

Oedipus Rex

Alas my pains are infinite,

All the host is ill.

And there’s no weapon in my wit.

I’ve no defender’s skill.

Our famous land is barren earth;

Its ample harvests fail.

Women labor, giving birth,

But all to no avail.

One here, one there. It’s all the same.

You see them rise and soar

Like birds or some relentless flame

To reach the dark gods shore.

Countlessly, the city dies.

No compassion’s found.

A deadly generation lies

Unpitied on the ground.

Wives and mothers, young and old,

Lament by altars shore

Pains and sufferings untold.

Their mournful voices soar.

Greta for jobs?

http://www.youtube.com/watch?v=nyHxG4EVCSo&feature=player_embedded#!

Spain

http://www.spiegel.de/international/europe/gibraltar-s-spanish-neighbor…

by Rudderless | 11th Jul 12, 10:40am 1341960043

AndrewJ.

Thank you. Your USA generated message is received loud and clear here in NZ.

I am acting on your warning with vigour.

But today the mainstream news is mostly about how fast some guy named Tom managed to spin off from his marriage to a woman I have never heard of. How boring!

Maybe the vast majority of the NZ Post WW2 middle class did not really deserve the benefits derived? They now fall like flies. They were once my customers.

by powerdownkiwi | 11th Jul 12, 10:49am 1341960594

Bread and Circuses.

Masterchef and Stadiums.

They're too stupid, or perhaps too happy to believe what they want to believe.

by Kate | 11th Jul 12, 10:49am 1341960554

Yes, thanks .. it's quite a bit different being there to experience it.

Do you know whether the USA student debt is interest bearing - and if so - at what rate?

by Andrewj | 11th Jul 12, 10:54am 1341960848

found this Kate

http://www.debtfreeadventure.com/how-student-loan-interest-is-calculate…

One of the tricks banks are using is making min payments below the interest rate so the debt actually climbs when you keep make minimum payments. They need some regulation over here and thye need it now. Obama is unliked, which surpised me, I thought there would have been a neutral bias.

by Andrewj | 11th Jul 12, 11:26am 1341962768

Looks like its %6, but i will double check tonight.

by Kate | 11th Jul 12, 1:27pm 1341970026

Shocking if it is - no ZIRP for the young, eh? Wonder if they can roll it into the home loan .. would certainly be cheaper!!!!

by steven | 11th Jul 12, 1:50pm 1341971427

depends who you ask...(Obama) the fact he's hog tied and taht so many still want to vote GOP makes me hopeful of a Romney win.....the sooner Americans take the poison pill the better IMHO.

regards

by Ghost Dog | 11th Jul 12, 7:03pm 1341990227

Mmmm... poison pill... *drool*

Shame that includes an Iran/Middle Eastern war.

Worked great for Bush...

by steven | 11th Jul 12, 12:18pm 1341965914

Apparantly one of the biggest reasons to go bankrupt is ppl with health insurance making a claim to find they dont. Private healthcare costs are climibing at 7%, so the bill will double every 10 years but Obama has forced ppl into having to pay....a govn sanctioned monopoly, so much for freedom.

regards

by Vera Fayed | 11th Jul 12, 12:57pm 1341968275

Andrewj - Awesome post. Your on-the-ground USA kiwi cocky insights are really valued. Worthy of your own blog. Do it. Save me from checking here for your posts.

by dh | 11th Jul 12, 12:39pm 1341967193

Here is a report on a study I was reading last night- The more technical information you give an economist, the worse their judgement.

by Christov | 12th Jul 12, 1:42pm 1342057353

dh...that is because they get bogged down with the permutations and as a consequence delve into the micro-economics of the matter rather than see the Big picture as directed by policy makers and those whose interests they (policy makers)serve.

The repeated failure of economists to recognise that economies are based on the decisions of those far less informed in micro-economics but in the drivers seat in regard to outcomes of the economic climate.

A bit like...there it is...now you make the figures fit the model.....that is a recipie for dissection not forecasting.

by Wolly | 11th Jul 12, 4:18pm 1341980304

"Of the 231 individuals who are in New Zealand 60 are unlawful as their visas have expired and they are liable for deportation.''

"The remaining 171 are on valid visas and they may become liable for deportation depending on their individual circumstances.''herald

Where are you Annettte King!....potential Labour Party fodder here...come on Annette...do something....demand they be allowed to stay...demand they be given benefits....