90 seconds at 9 am: Reality checks

90 seconds at 9 am: Fed signals watched closely; Dow at new record; OECD eeks out growth; AU coal in trouble; AU Govt hard choices; NZ$1 = US$0.816 TWI = 76.9

22nd May 13, 8:59am by David Chaston

Here's my summary of the key news over the weekend in 90 seconds at 9 am, including news equity markets are testing the limits of reality.

Remarks from a pair of regional Federal Reserve officials helped reassure investors concerned that the central bank is moving to wind down its bond purchases, pushing stocks toward another record level.

Markets are awaiting some testimony before Congress from Fed chairman Bernanke tomorrow, but are taking these signals from more junior Fed officials as an indication of what he will announce.

The OECD said overnight its member's economies were showing slight growth, up 0.4% in Q1 2013, led by Japan and the US and with the EU lagging.

Almost all major countries improved from the previous quarter even if some were still declining.

We may think SOE Solid Energy has problems, but Australia's thermal coal industry is in desperate shape as sales and prices plunge for its products.

Now there are reports that these Aussie coal operators are auctioning off their port assets to pay the bills, a sharp turnaround from 18 months ago when they struggled to find berthing capacity and were investing in it in a substantial way.

And staying across the ditch, Australians will have to either pay more tax or expect poorer government services, the head of their Treasury has warned.

Demand for government services is rising and tax collections are weak. Winning their upcoming Federal election may be a dubious prize because some difficult choices lie ahead for the 'lucky country'.

In fact, yesterday's migration data clearly showed rising arrivals of permanent migrants from Australia while departures of Kiwi's to Australia is slowing fast.

The NZ dollar starts today at 81.6 USc, 83.2 AUc, and our TWI now stands at 76.9.

No chart with that title exists.

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8 Comments

by Stephen Hulme | 22nd May 13, 9:37am 1369172272

We may think SOE Solid Energy has problems, but Australia's thermal coal industry is in desperate shape as sales and prices plunge for its products.

I know so and expect those responsible to forfeit past and future renumeration, as a minimum penalty.

As Labour SOE spokesman Clayton Cosgrove noted here:

"The Government let this company get deeper and deeper into trouble. Instead of facing facts and ensuring the company had a long-term future they kept trying to put up the 'for sale' sign. They were asleep at the wheel and dreaming of the asset-sales dough."

This surely signifies a shameful dereliction of duty by those responsible.

by Kate | 22nd May 13, 11:30am 1369179014

It's quite plain to me that Solid Energy's mess is a direct result of Government direction - given by Simon Power as Minister for SOEs.

See Simon Power's letter to them in May 2009;

http://media.nzherald.co.nz/webcontent/document/pdf/201311/Letter%20from%20Ministers%20to%20Solid%20Energy%20May%202009.pdf

So, effectively, in 2009 the Govt says, we don't like it that you are forecasting lower returns over the next three years due to forecast declines in coal prices (which by the way we accept are likely). Just do something about it - we want more dividends from you, not less. .

It's no wonder they produced a "grand plan" and set about attempting to please their master.

Given Simon Power's letter - one has to wonder whether the Board should be blamed for getting the company into trouble. The company forecast a downturn - the Govt said, we won't have any of that - get on the debt bandwagon and go for it. Simon Power even suggests a mix of debt and equity injections from their shareholder would be considered on a case by case basis.

So for Key to suggest Solid Energy wanted more money is plain wrong, Looks to me like the government was trying to shove money at them (be it debt or equity or both) in encouraging them to turn a profit at all costs.

Interesting to note Simon Power left government (before tshtf) and joined Westpac;

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10758419

Oh, and here's the Government's 2010 response to their "grand plan" formulated following the telling off in 2009;

http://media.nzherald.co.nz/webcontent/document/pdf/201311/SolidLetter.pdf

Thanks but no thanks on the NRC - however we are supportive of your plans to develop lignite and unconventional gas resources.

by Wolly | 22nd May 13, 9:48am 1369172920

" the economic data have strengthened the Chancellor’s hand"

http://www.telegraph.co.uk/finance/economics/10071951/Europe-faces-lost-decade-says-Mark-Carney.html

and Carney is about to arrive with his print print print plans...this will be funny to watch

by Boatman | 22nd May 13, 10:25am 1369175125

The sooner Key gets us out of Solid Energy the better, its a dog of a company , to use stock market parlance .

All its mines altogether produce only 4 million tonnes a year and could never get on top of its debts with such low production and poor economies of scale and widespread operations .

For example , Blackwater mine in Australia alone produces between 14 and 15 million tons, and it is regarded as having " reasonable to good " economies of scale. Most single Aussie mines produce around 4 mt , (the total of Solids many mines)

The only domestic coal users are Huntly thermal station and the small Glenbrook steel plant , the rest is exported , and this throws up 3 problems

1) The tyranny of distance makes the costs higher to importers

2) Falling international coal prices mean we earn less

3) The rampantly strong Kiwi $ means we earn less still

4) There is a worldwide over-supply of lignite ( a low grade peat -type coal ) which is the cause if much on China's smoggy air polution

Solid's coal is mostly low grade , much of it is lignite and of little value , and this is unlikely to change anytime soon .

I would be disapointed if the taxpayer had to stump up money to dig this animal out of its hole

It should be liquidated and the assets ( mining licences ) sold off to get out of the mess

by waymad | 22nd May 13, 10:51am 1369176715

DC - lurve the headline 'eeks out growth'

That would be in their business Eek-o-system, no doubt.

by powerdownkiwi | 22nd May 13, 11:14am 1369178087

No comments yet on the interrelationship between energy and money.

Which is the key bootstrap problem here.

When you were in your teens, you grew and got zits. You could count the zits, and use then to calculate your rate of growth. The zits weren't causal, but the counting would work till it didn't.

Same valuing energy with money - given that without the former, the latter would be worthless. There is an Energy return on Energy Invested level, below which BAU can't be maintained - meaning that at-and-below that point, current debt can't be repaid.

Beyong peak real energy flow, we had to go backwards in real underwrite - things like this had to happen. How come folk can't grasp that? Even Rhodes Scholars (I presume they have a little nous) like Elder, seem not to understand the wave which broke over them.

Perhaps Interest.co should re-post the Amanda interview of Nicole Foss?

And run a sweepstake on when - not if - the Dow pops.

by Henry_Tull | 22nd May 13, 12:33pm 1369182784

IPO market: Conditions not what ppl wished for...

We still consider the advisors to the MRP float/IPO have been caught short.

1 By being poorly connected Wellington wise (how come that was the best kept secret in ages),

2 Then not picking the trick in the wholesale power market, and

3 Now being shown to have had poorly formed views of the investor market......

Tepid float frustrating for National's plans

http://www.nzherald.co.nz/opinion/news/article.cfm?c_id=466&objectid=10…

"You always get this up-and-down with a share price post-IPO as non-natural sellers exit and natural buyers come in."

http://www.stuff.co.nz/business/industries/8700582/Investors-urged-to-k…

Zees resting...

Kiwi float hopeful Z Energy primed for restructure

20 May 2013 | Sarah Thompson, Anthony Macdonald and Gretchen Friemann

PRINT: 21 May 2013 | PAGE 16 | Kiwi float hopeful Z Energy primed for restructure

New Zealand’s next major float candidate, petrol supplier Z Energy, is understood to be considering a shake-up before its potential $600 million-plus IPO, targeted for August.

Australia energy market ‘difficult’: CLP

20 May 2013 | Angela Macdonald-Smith

PRINT: 21 May 2013 | PAGE 1 | CLP still grim on EA outlook

Hong Kong-listed CLP has offered a bleak assessment of energy market conditions in Australia, which appears to leave little scope for a near-term float of its EnergyAustralia subsidiary.

by Stephen Hulme | 22nd May 13, 1:39pm 1369186757

"You always get this up-and-down with a share price post-IPO as non-natural sellers exit and natural buyers come in."

Is this nonsense meant to benefit them or us?

It's about time they got on message and found other reasons to defend the inadequacy of the MRP float.

US Federal Reserve representatives are unequivocal in their support and expectations for the asset markets.

Our view is that asset purchases work primarily through the asset side of the balance sheet by transferring duration risk from the private sector to the central bank’s balance sheet. This pushes down risk premia, and prompts private sector investors to move into riskier assets. As a result, financial market conditions ease, supporting wealth and aggregate demand. The fact that such purchases increase the amount of reserves in the banking system and the size of the monetary base is a byproduct—not the goal—of these actions.