Here's my summary of the key news overnight in 90 seconds at 9 am, including news of fiscal and monetary desperation.
France needs to deliver promised budget cuts if it wants to avoid a further credit rating downgrade, Standard & Poor's lead analyst for the country told Reuters newsagency overnight.
The credit ratings agency has already stripped France of its AAA rating, and now its seems its AA+ is under threat as well. France is stuck between unsustainably debt levels and shrinkage in its economy.
Until recently, it has been Germany arguing for austerity in the EU. But recent signs are that they too are considering a QE spending splurge.
We also need to keep an eye on the Japanese stock market because investors have marked it down more than 12% in just the last five days.
Serious doubts about the Abenomics experiment are taking hold. A Japanese crisis would be a big one and would certainly affect New Zealand.
In the international corporate bond world, a new bubble has emerged - covenant-lite offerings. Investors are starting to give up loan-quality promises in the chase for yield. Let's hope it is not a trend that invades New Zealand, although our fixed interest funds who invest overseas will need to address it.
In the latest version of the OECD's Better Life Initiative, where there is an attempt to assess and rank countries other than by GDP, New Zealand came 11th in the eleven component 36 country survey - if every component was ranked equally.
Australia came out on top, with the rest of the top ten countries from northern Europe or North America. Our strong suits are health, safety, environment and life satisfaction. We are weakest in income and housing.
That 'better life' is encouraging many more illegal asylum seekers to Australia that ever before - as many as 25,000 are now expected to arrive this year, almost five time the original forecast. I wonder how New Zealand would react if we were subject to such a growing wave.
The NZ dollar starts today at 80.8 USc, 84.0 AUc which is another four and a half year high, and our TWI is unchanged at 76.3.
No chart with that title exists.
20 Comments
Some musings about the price of gold:
Mining inflation in the past 10 years has been phenomenal - combine this with depleting reserves of higher quality ores (that old 'peak' problem) such that miners now try and extract mere grams per ton and you have the situation whereby an economic floor has been rapidly raised below which mining rapidly becomes uneconomic (and so supply shuts down below a certain price).
Interesting then to see this morning wailing from 2 of our local producers - in effect the price of gold is making some of their operations close to non-economic.
http://www.stuff.co.nz/business/industries/8723203/Gold-price-plunge-af…
http://www.stuff.co.nz/business/industries/8723169/OceanaGold-reviews-R…
I suspect similar reviews as to whether to halt new developments/shut in production are going on globally as we speak.
This chimes well with recent analysis which estimates the all in production costs of gold being $1300 plus in many mines:
http://www.bloomberg.com/news/2013-04-16/gold-miners-approaching-1-300-…
So the paper traders attempting to force gold lower face a problem - production will start to be shut down and supply will start to fall if gold goes any lower (and it looks like we are already seeing this).
Of course production is only one component of the gold situation (annual production is only a few percent of the total gold in existence in any one year). However given that the vast majority of this already mined gold is not going to come to the market (held by central banks, Indian families etc) supply remains a very important component in setting price.
Interesting to apply the same principles to other commodities - if the oil price fell significantly large swathes of very expensive to produce deep sea and tight oil would be soon shut in, again rapidly putting a floor under this most essential of all commodities as supply was shut in.
This phenomenon has of course been reflected in past peaks like coal and yes will be reflected in future peaks. That of course looks to make Hubert's peak asymmetrical, ie output falls faster then anticipated as the ability or wish to pay for ever increasing extaction costs make no sense to end consumers and hence business sense.
You assume its paper traders trying to force prices down (evidence pls?), or its simply ppl exiting gold as they think its no longer going to go past $2000, or 3000 or 5000 or what even the gold bugs thought was how it was going to go due to massive inflation from all the printing.
Shut in I think is what will happen, mineral companies will look at these technologically very hard sources that apparantly need more than the market can pay and abandon them....there was still coal in the UK, but no one would pay for it.
regards
Red flag waving?
"FOREIGN investors are winding back their exposure to Australia's big four banks to lock in profits as the Australian dollar sinks and the dividend-yield trade loses some of its shine."
http://www.theaustralian.com.au/business/financial-services/foreign-investors-dump-big-four-banks/story-fn91wd6x-1226651692012
A mind-boggling stat on the end-effect of American consumerism:
The six heirs of Wal-Mart founder Sam Walton have as much wealth as the bottom one-third of all Americans combined.
http://www.zerohedge.com/news/2013-05-27/40-frightening-facts-fall-us-economy
"France needs to deliver promised budget cuts if it wants to avoid a further credit rating downgrade, Standard & Poor's lead analyst for the country told Reuters newsagency overnight.
The credit ratings agency has already stripped France of its AAA rating, and now its seems its AA+ is under threat as well. France is stuck between unsustainably debt levels and shrinkage in its economy."
Just a thought, what difference will it make to France if they are again downgraded.
In times previous it may well cause the powers that be in France to get their house in order to remain competitive but today they have the Euro regime.
There is always a bailout or something of the sort in the wings.
Which tends to negate the will to do anything about the situation.
"Don't ever trust them ... never."
Speaking at a business women's conference in Tauranga, van der Heyden said doing business in China was full of surprises.
"You've got to go and do business with your eyes wide open," he said.
Asked by an export manufacturer how small New Zealand businesses could ensure they were not ripped off when trading in China, Sir Henry said bad experiences should be used as opportunities to learn.
"That's my point about China. You will be full of surprises. Don't ever trust them ... never."
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=108…
Judith Collins will not be pleased. Is this a case of "wearing your heart on your sleeve" that demands Sir Henry take apparently long overdue gardening leave?- "emotional and tired" might cut it with the wife, but not in the arena of international trade relations.
Makes this interesting....
Chinese food giant Bright Dairy & Food will give up its controlling stake when local dairy processor Synlait Milk is listing on the stock exchange, retaining its stake without participating in the share sale.
Shanghai-based Bright Dairy is expected to keep its investment, diluting its 51 per cent stake into the 40s. Other shareholders will have the opportunity to sell some or all of their shares into the initial public offer, with any remaining stake subject to escrow arrangements.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=108…
Some days you wish you'd stayed out side (no matter how cold it is)
Maybe we can get some warmth out of the retractornator that has just started up......
Former Fonterra chairman Sir Henry van der Heyden says a report that he told a business audience not to trust Chinese has taken his comments out of context.
Van der Heyden is today attending his last board meeting as a director of Fonterra, New Zealand's biggest company whose biggest export customer is China.
Van der Heyden is being reported as warning an audience at a business women's conference on Saturday to be wary of fraudulent behaviour when doing business in China.
http://www.stuff.co.nz/business/farming/dairy/8725834/Van-der-Heyden-sa…
HvdH is probably warm....
Former Fonterra chairman Sir Henry van der Heyden has apologised to "China and its people and Government " for warning New Zealand businesses not to trust the Chinese....
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=108…
"It was an ill-judged comment taken out of context," he told the Business Herald. "I apologise to China, its people and its Government."
"China is where New Zealand's future is."
ABC TV's Four Corners that China is suspected of pinching the blueprints for ASIO's allegedly high-security and massively expensive new building on the shore of Lake Burley Griffin ought really to be filed under the heading of "payback".
Read more: http://www.smh.com.au/opinion/politics/chinas-payback-to-asio-the-latest-in-a-tradition-of-spookery-20130528-2n8wm.html#ixzz2UZGVFHNU
its all been a terrible mistake:
http://www.youtube.com/watch?v=04QoA44c23A
van der Heyden forget to mention to also not trust offshore financial institutions.
Craig Norgate on what would happen to Fonterra if TAF didn't go through.
"All of the financial institutions I have been dealing with offshore are watching the situation with a keen interest. A number would like to invest in Fonterra but won't under the current proposal given the protections for farmers. Equally they will be like vultures if the proposal doesn't go ahead."
Now that last sentence sounds very interesting. If only he would have talked more. I didn't realise offshore financial institutions had so much leverage over Fonterra. How did Fonterra get into such a situation?
Maybe there were some other reasons why Fonterra went ahead withTAF, which Fonterra probably doesn't want to discus.
http://www.stuff.co.nz/business/farming/7066752/TAF-scheme-essential-Norgate
Kiwi - you are probably not wrong - Both Fonterra and the farmers buying the wet share rights were claiming ownership of the same property rights - the banks were claiming the same after financing said farmer positions and probably financing Fonterra when redemption claims arose. Such a mess.
Ralph,
Am sure you are on to something. The Germans, as with other current account surplus obsessed states, feel far more threatened by their fellow surplus countries who are playing the same currency war game, than they are by say unemployment in Spain or Greece. They are more likely therefore to channel any efforts to help manufacturers in Germany, than in the European periphery, although there may be some beneficial spin off.
I noted the other day, here:
that the surplus countries in this survey- Japan, Germany, China, South Korea- each have a more negative view of each other than other countries do of any of them. They are very competitive, and watch their prime competitors like a hawk.
China and Japan at least appear to be doing something to lift their own consumption (even if the Japanese printing could well be more about competitive devaluation). The Germans I'm sure fully understand that no-one can export to Mars; so you have to assume their current settings (which determinedly deliver a surplus, and where they nonsensically berate other European countries to be like them) are about gaining ownership of as much of the world's assets as they can achieve without revolution somewhere.
"are about gaining ownership of as much of the world's assets"
Sigh, there we go again. A thread hijacked by 'limits'.
:)
Actually, if you're accounting properly, South Korea is a dead loss. They have something called 'fan death', which they sincerely believe will kill you. Aparently, if you close up a room, turn on the fan, it'll take all the oxygen (or air, it doesn't seem to matter to the story) and you'll die. Death Certificates are issued with it as the cause. So they throw the windows wide open with the heaters on full blast, in uninsulated buildings. We've had multiple wwooffers here, who've taught in Korea and come up against it. Shows you how easy mass-delusion is, but of course, it couldn't happen here......
http://en.wikipedia.org/wiki/Energy_in_South_Korea
http://en.wikipedia.org/wiki/Fan_death
If you're accounting for depletion of physical capital, properly, S Korea is a negative. Actually, they all are.
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