What happened Friday

A review of things you need to know before you go home on Friday; mortgage rate cuts bite harder, bond yields rise, food prices fall as do dairy prices, swap rates flatten and fall, NZD unchanged

12th Jun 15, 4:07pm by David Chaston

Here are the key things you need to know before you leave work today.

TODAY'S MORTGAGE RATE CHANGES
Today, ANZ, Sovereign and BNZ all announced cuts to their floating rates, following yesterday's -0.25% OCR cut. The interesting one came from BNZ who cut their Total Money rate by -0.40% to 6.34%, the lowest floating rate in the market. It has been a very long time since we had rate competition for mortgage floating rates. And late today, HSBC has cut its floating rates as well - but has also cut its one and two year fixed rates, both to 4.95%. Keep an eye out for more changes over the weekend.

TODAY'S DEPOSIT RATE CHANGES
The Cooperative Bank announced the end of their 4 month 'special' rate of 4.50%. That rate now reverts to 4.00%.

GOVT BOND YIELDS RISE
Latest Government bond tender of NZ$300 mln 2027's received bids for NZ$1.1 bln but only 23.5% of these bids were successful. The weighted average yield accepted was up +12 bps to 3.87%.

THE RIGHT PRICE
We don't often bother reporting management changes in the financial sector, but this one is intriguing. UDC Finance CEO Tessa Price is departing for a new Melbourne-based gig as chief of staff for ANZ group boss Mike Smith. I doubt this is the last we will see of Ms Price in New Zealand.

NO UPTICK SIGNS YET
The latest readings of dairy prices are not encouraging, The broader USDA report out overnight showed that WMP fell another US$100/tonne. But the impact in NZ dollars was muted because of the fall in the currency. The next Fonterra auction is on Wednesday.

THEIR FIRST NZ FUNDING FORAY
The huge China Construction Bank has completed a NZ$75 million note issue comprising three and five year terms. A total of $50 million of three year money was raised priced at a margin of 85 basis points giving a fixed interest rate for investors of 4.317%. Another $25 million was raised in the five year tranche. This is paying a floating interest rate priced at three month BKBM plus 1.20%. They say "the purpose of the offer of notes is to raise funds which will be used for the general corporate purposes of CCB NZ, including making loans and other banking products available to CCB NZ's customers."

'MINOR DIP'
New Zealand’s manufacturing sector experienced another minor dip in its level of expansion during May, with a seasonally adjusted PMI for May at 51.5. (But on an underlying unadjusted raw basis there was actually quite a jump.)

PRIVATE EQUITY DEBT COLLECTOR
Dunn & Bradstreet has sold its credit reporting and debt collection business in Australia and New Zealand to a private equity investor. They will still operate under the D&B branding however.

FOOD PRICE INFLATION LOW
Food price data was out today and that confirmed there is little price pressure here - except perhaps for meat, poultry and fish.

WHOLESALE RATES FLATTEN
There was a very strong flattening trend in the interest rate swap markets locally today. The 1 year swap rate fell by -1 bp, the 5 year by -8 bps, and the 10 year swap is down -11 bps. The 90 day bank bill rate rose by +1 bp to 3.30%.

NZ DOLLAR UNCHANGED
Our currency value not changed much today following the the RBNZ decision. It is still at 70.2 USc, at 90.5 AUc (which is the exception), 62.3 euro cents, and the TWI-5 is at 73.9. The NZ$/US$ cross has been trending lower since April/May and looking at the charts over a longer time period the drop is pretty insignificant. Keep in mind also that the fall in the NZ$/US$ was simply bringing it back to levels we had seen previously on June 6. Governor Wheeler has got to be disappointed. Check our real-time charts here.

You can now see an animation of this chart. Click on it, or click here.

Daily exchange rates

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Source: RBNZ

Source: CoinDesk

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79 Comments

by Stephen Hulme | 12th Jun 15, 4:44pm 1434084270

Governor Wheeler has got to be disappointed.

I seriously doubt a lower value for the NZD/USD pair was the purpose of knocking 25bps off the OCR to 3.25%, despite repetitive comment (open mouth operations) to the contrary.

by sharetrader | 12th Jun 15, 5:39pm 1434087589

there is a selling bias on the NZ dollar some traders picking it to go into the low 60,s But it is being held up by I suspect buying for the AKL property market. we will know in a couple of months when the new foreign rules come if that buying disappears.

by kiwichas | 12th Jun 15, 10:15pm 1434104108

With the drop in the Kiwi dollar from 85 to 70 c US those houses just look cheap to an overseas buyer(and our farms)

by Grant A | 14th Jun 15, 8:45pm 1434271544

No not by that sharetrader, a drop in the bucket of NZD flows. Its had its correction on last week's semi-surprise, and now awaits another leg up in the USD.

by steven | 12th Jun 15, 8:51pm 1434099111

"A Bloomberg column by investment guru Barry Ritholtz summed up the report: “In the real world, climate-change deniers are and will be giant money losers.”"

http://www.mercer.com.au/newsroom/new-research-cautions-investors-on-cl…

by notaneconomist | 12th Jun 15, 9:43pm 1434102211

And all this climate change stuff is going to put taxpayers on the hook as business and investors add up the profits they will lose when the climate hoax nonsense is proven........leaving your children and grand children to pick up the bill is hardly a sustainable choice...

by steven | 13th Jun 15, 6:40am 1434134435

The math, data and science supporting / proving climate change is just to certain for that ever to occur.

The bill/debt being left to my children and grand-children by BBs and especially ppl with attitudes such as yourself etc today is already over-whelming, it will be defaulted on.

by cowboy | 13th Jun 15, 9:47am 1434145658

I find the science and data questionable but the overall pattern and effects are not. Change is happen regardless of source. environmental pollution (increased energy drawing, increased lakes drained, idiotic "we must have clean green image" companies opening coal mines, floating islands of plastic, tyre mountains,frankengenetics being developed).

What I find questionable is things like the recent G7 decision on fossil fuel. .... who pays.

by notaneconomist | 13th Jun 15, 10:55am 1434149731

Which science are you talking about?

http://www.climatedepot.com/2014/04/05/warmist-james-powell-claim-of-ov…

by Kate | 12th Jun 15, 9:56pm 1434103007

Seen this;

http://www.stuff.co.nz/national/69317120/insurance-wont-cover-flooddama…

I wonder how many other councils in New Zealand will be faced with the same explanation that it was "too expensive to insure" in future. Most I'm guessing. I have always felt flooding and slippage were going to be the most costly of the climate events in future. SLR is a more gradual problem - one which gives time for adaptation. These heavy rain events don't provide the same luxury of time - and insurance is going to be prohibitive in cost for many LAs.

by King of the whiners | 12th Jun 15, 10:12pm 1434103978

Anyone living next door to a significant water course, on or close to an obvious slip zone or within a meter or two of the mean high tide level had better be prepared to be living there uninsured within a decade or so, because you wont be able to afford what the insurance companies will quote you. Better hope you are not one of them, notaneconomist, otherwise you will be notinsurable as well.

by steven | 13th Jun 15, 7:11am 1434136304

yes except those same ppl with money will fight the council to keep their LIMS "clean" and then sue the council afterwards as the LIMS are clean.

I certianly think that we'll see un-insurable properties more frequently in the future, I mean build on a rivers flood plain? wtf? duh.

If notaneconomist is so sure climate change is a huge con there is great investment opportunity for her to buy up. Me Ive bought in an area accordingly.

by notaneconomist | 15th Jun 15, 12:32pm 1434328320

King of the Whiners and Steven .....for goodness sakes stop preaching nonsense from the pulpit.....and at least have the guts to read all the literature from a neutral point!!

If climate change pushers were so certain of themselves they wouldn't bother with all the name-calling and nasty behaviours as they would know that they can prove themselves and their point of view without having to resort to such actions........

by steven | 15th Jun 15, 1:02pm 1434330168

I have read it for about 9 years, I consider Climate change irrefutable. I started out from disbelief and hope it was not so, to the realisation that the argument was totally one sided in terms of Math, physics and science. it came down to climate change is real and serious (not as serious and urgent as peak oil but there you go) and we cant morally ignore it.

Do you know what has really struck me in the last 12 or so months if close reading? When you look at many of the deniers articles, myths or falsehoods you find at best they are very carefully cherry picking data, data sets and data points. By this I mean they go through the data and with careful, determined effort pick the very best numbers that best prove their point of view. This means they have looked at the data and rejected most of it as not saying what they want to hear. This can be but read as wilful, that isnt scepticism, that is utter denial.

nasty behaviours and name calling?

a) Actually its Mann taking a libertarian/right wing rag/blog to court for such a thing.

b) how about death threats? can you show me where a reputable climate scientist has issued death threats against deniers?

c) Or a think tank against deniers doing the same?

by steven | 15th Jun 15, 1:03pm 1434330216

PS I pointed out an opportunity for you to go against the "flow" if you are so sure how can you believe you can lose?

PPS that is hardly name calling.

by Kate | 13th Jun 15, 10:51am 1434149511

From what I've read, the majority of the urban damage seen in both Dunedin and Wellington/Hutt/Kapiti from these two recent events was the result of overloaded/failed stormwater systems. In other words, in the main traditional flood defenses (i.e., river stop banks, surge arresters, etc.) held - it was just that there was too much volume, too fast for adequate drainage to occur into those major watercourses - and the result is urban surface flooding and debris (affecting transport links, rail tracks etc.)..

I guess my point is - although a lot of climate change alarmists like to point the finger at homeowners who purchase properties near watercourses or within near proximity to the sea, etc. (i.e., those they perceive to be in harms way) - the fact is ALL urban property is at risk because all urban properties rely on adequate drainage.

Where climate change is concerned we are all in it together.

by cowboy | 13th Jun 15, 3:27pm 1434166039

often what can cause volume issues is improved drainage upstream. It relieves the pressure in the top end minor waterways, and drains the collection area faster, but as you have noticed it delivers "peaky" volumes at the lower end, especially if councils have been cutting costs on the final exit ways (which might not have had problems before). It's a common mistake because the assumption is that infrastructure that already works is adequate.
Also improving lower stages gives "fall" and less resistance to the stages above it, resulting in faster delivery (and thus higher volume).

by steven | 13th Jun 15, 7:06am 1434135976

I have already commented on this V profile and a few etc especially the moral hazard and insurance refusal aspect. ie a) sea walls, seems ppl living on the coast etc will expect all the ratepayers to fork out $s to protect the )usually well off) few. b) I think there has been court cases where the council wanted to mark areas as risk on the LIMs and lost that in court? So the council is also doing in-adequate work in this respect leaving rate payers liable. In such a scenario I expect that insurance companies will do their own assessments as best they can or simply blanket not insure anyone within X metres of the high tide mark or risk area. That will leave the last man standing as the council, ie rate payers to fork out the cost. That is especially obscene when you consider the at risk areas are usually the 'expensive' ones so its a regressive tax in effect hammering those least able to pay for those who knew or should have known better. My "hope" is there will be some justice via the insurance companies refusing to insure such stupid ppl hitting them in the pocket, about the only thing they understand.

In terms of heavy rain events the latest climate discussions/evidence/theory building is that these extreme top few % of events are becoming markedly more frequent and worse. So the bell curve is shifting in an "interesting" way. In some cases for instance the data is starting to suggest a 1 in 20 year event may become 16 times more frequent, or in other words almost annually. This has huge implications on so many levels, a) engineering design, so drains and walls need to be sized and installed for increasing magnitudes of events, but it is extremely hard to do so especially as that means a significant cost increase. b) Insurance companies will I suspect wear the first such event but then inform the insured that due to location future flood events will not be covered. Once your house is no longer insurable you cant get a mortgage on it and its value then plummets, so substantial losses for someone.
c) As the events become bigger previously safe areas will become under risk so the LIMs even if competently done will cover areas too small. The councils meanwhile I suspect will simply can kick the problem down the road at the costs of doing the reports for the LIMS properly and fighting the resulting court actions from the well off will be un-affordable.

Like I keep saying its going to get ugly.

by profile | 15th Jun 15, 2:31pm 1434335480

The only problem Steven is your flooding chicken little rants aren't supported by the IPCC. For someone like your good self who loves to push the argument from authority it must be really annoying. Your "16x"(!!) increase in SC US just isn't showing up on a global scale. Quite ironic the other day when you discounted the IPCC summary and tried to override it with a cherry picked quote from a Bush appointee!

Repeat after me - the summary on flooding from the the AR5 WG1 Ch2:

"In summary, there continues to be a lack of evidence and thus low confidence regarding the sign of trend in the magnitude and/or frequency of floods on a global scale."

That said - if one chooses to live on a floodplain or on the coast your role the dice but for goodness sakes don't blame climate change if your house floods. No different to living on a volcano or known earthquake zone.

And btw I love how your 16x "data" has morphed from the 16% increase you cherry picked/quoted the other day when we swapped notes on this subject. Thank god you are in IT not working as an engineer!

" by steven | Wed, 03/06/2015 - 09:19

"And indeed, Texas lies in a region of the country that has seen, overall, a 16 percent increase in the amount of rain or snow that falls in the heaviest 1 percent of precipitation events, according to the National Climate Assessment:"

http://www.washingtonpost.com/news/energy-environment/wp/2015/06/01/the-..."

""We have observed an increase of heavy rain events, at least in the South-Central United States, including Texas," said Nielsen-Gammon, who was appointed by former Gov. George W. Bush in 2000. "And it's consistent with what we would expect from climate change."

https://www.texastribune.org/2015/05/27/climate-change-factor-floods-lar..."

by steven | 15th Jun 15, 2:37pm 1434335832

the global scale is an average, so some areas will we be wetter, some dryer, globally yes OK no change. However the top few % of events taht are more severe cause more damage and claims.

The answer is quite simple of course here is a big opportunity for you to invest in insurance, put your name into Lloyds of London syndicates.

by profile | 15th Jun 15, 3:17pm 1434338227

That's great so globally yes OK no change. So why all the fuss and name calling? The top few % events you mention are not showing up in claims else I wouldn't be reading articles like this.

"Blue skies create a reinsurance tradegy."

http://m.ft.com/intl/cms/s/0/66808b76-a315-11e4-9c06-00144feab7de.html

by steven | 15th Jun 15, 4:12pm 1434341556

a) the IPCC's comment on globally is actually based on old data and research. New research says not so fast. In terms of change I think it was Lloyds of London commented that the sea level rise we have had so far has cost them $s. Yep, here you go,

http://www.theguardian.com/business/2014/may/08/lloyds-insurer-account-…

"A new report by Lloyd's, which consulted the world's largest catastrophe modelling firms, says a 20cm rise in the sea level at the southern tip of Manhattan Island increased Superstorm Sandy's surge losses by 30% (up to $8bn) in New York alone."

b) the fuss is that we have climate change and its costing some money now, but nothing like what it will cost in the future.

http://www.theguardian.com/environment/2014/may/06/climate-change-repor…

"The report is a compilation of published peer-reviewed science of the last several years, and details the effects of climate change on eight regions in the US. It notes that average temperature in the US has increased by about 1.5F (0.8C) since 1895, with more than 80% of that rise since 1980. The last decade was the hottest on record in the US."

c) ft.com one of the big denier papers, yet the insurance companies note increased costs. Again you seem to be determined to paint a picture of we have climate change and hence no problem and no increasing problem in the future by claiming there is no problem today. This however is not correct.

If on the other hand you do think its blue skies ahead jump in and take some re-insurance action you should make a killing.

by profile | 15th Jun 15, 5:10pm 1434345024

So the 2014 IPCC AR5 is now old data. Got it. Lame - even for you. The Guardian - the go to reference with the IPCC lets you down. Odd that you pick "Superstorm Sandy" as an example given it was mentioned in the FT link I gave you. If you had bothered to read it...

"Sadly for the insurance industry, if not people living in storm damage-prone areas, insurance companies are not making “unbelievable” payouts due to climate change, contrary to what Mr Kerry seems to believe.

The US has now gone through nine years of hurricane seasons without a “major” (category 3 and above) storm hitting the coastline. “Superstorm Sandy” was only a category 1 storm at the time it hit land."

"Super" - yeah right. Chicken little speak.

Sea levels rise in an inter-glacial so get used to it. The great news is the "latest" data is that US coastal hitting hurricanes are in decline.

Do I "cherry pick" the "latest" data or do I refer to the latest IPCC summary? Looks like you have all the bases covered.

by steven | 15th Jun 15, 5:59pm 1434347992

Ah right but as a denier you will never be convinced. No matter your position is going to be well documented here for all to read. As the science improves so will the confidence levels will the IPCC's reporting.

by steven | 15th Jun 15, 4:13pm 1434341600

um "chicken little" at best pot calling kettle black.

by steven | 15th Jun 15, 2:44pm 1434336265

You are not capable of honesty are you. Incorrect, so now you are building straw men. The 16x is a different data event comparing 1 in 20 events that appear to be happening 16 times more frequently. V the 16% mentioned above for a specific region.

http://www.texastribune.org/2015/05/27/climate-change-factor-floods-lar…

by profile | 15th Jun 15, 3:11pm 1434337894

Steven, perhaps you could provide the link to your 16x claim and I will stand corrected - not a problem. The link you have pasted provides no reference to 16X nor 16%. So why did you paste it? If you have an URL for a 16X event that that would be way better to post than some measly 16% increase.

by steven | 15th Jun 15, 4:14pm 1434341656

Oh right 16% is no biggee, that is of course so far.

by profile | 15th Jun 15, 4:47pm 1434343662

Well no it isn't a biggee when it applies to 1% of events in the SC US. A country more than well enough resourced to handle some rain. In the great scheme of things the IPCC only have low confidence in any trend at all (see quote above) so your 1% SC US cherry pick is meaningless.

Now where is the link to the 16x? If you are going to question honestly you could at least be good enough to provide a link. Or you could just admit a mistake. We all make them. Though I 'spose Malthusians never admit mistakes they just got there timing wrong. Again.

by steven | 15th Jun 15, 5:54pm 1434347655

https://www.youtube.com/watch?v=rmFuM440TWw

5:35secs

there you go.

by profile | 15th Jun 15, 8:28pm 1434356900

Thanks for the youtube URL. I'll weigh it up against the IPCC AR5 summary. Now have you managed to find that "16x" URL yet?

by steven | 15th Jun 15, 5:55pm 1434347730

yeah right, and the countries not well enough resourced? no matter they are poor ppl?

by profile | 15th Jun 15, 8:20pm 1434356411

That's rich. Big Green does everything it can to deny developing countries cheap electricity and now claim to care about poor people. Those poor people you care about would be far better off if the billion/day global warming gravy train was spent on access to fresh water, sanitation, cheap electricity, vaccines. I imagine "fighting" climate change is pretty low on the to do list of someone on $3/day.

by steven | 15th Jun 15, 6:06pm 1434348409

1% so far. When the number turn into $billions and the lives lost well 1% is starting to look expensive even today. What is it going to take to convince you 5%? 10%? No you never will be will you?

by profile | 15th Jun 15, 8:15pm 1434356157

Some cherry picked stat from SC US ain't going to convince especially given the latest IPCC "low confidence" pronouncement on flooding/droughts. There is always being a weather record being broken somewhere and always will be.

As for lives lost... lives lost today to natural events are a fraction of wheat they were 100 years ok due to things like hospitals, antibiotics, cell phones etc. etc. Even with all that climate change you are still far safer today than any of your forebears.

by steven | 13th Jun 15, 8:06am 1434139597

Did the Councillors approve the non-insurance? if not the CFO should be sacked as a failure in duty.

If so are they left explaining the hefty bill? or at least I hope they are asked to explain it.

On top of that this means the potential for a claim of staggering size. Is Christchurch insured? is wellington?

by Stephen Hulme | 13th Jun 15, 9:09am 1434143357

The failure of duty has been to allow obscene valuations to accrue to anything that can be pledged as an asset against rising debt values - inevitably this involves land and buildings and necessary service infrastructure . Our society produces nothing of value, including income in magnitudes necessary to replace or repair damage to such overvalued leveraged asset classes.

by cowboy | 13th Jun 15, 9:36am 1434144981

The value can't be "obscene" as long as there is someone who is willing to pay for it - that being the definition of market value.

by bw | 13th Jun 15, 9:48am 1434145731

"So bubble mania has finally hit the mainstream. The housing bubble question has landed squarely at the feet of the Prime Minister and his treasurer....Hockey and Abbott cannot pull the veil back down over the hideous monster that is Australia’s 16 year long housing bubble. That veil has now been permanently lifted. The cat is out of the bag and roaming the remorseless realms of the internet meme, destined to immortalise 2015 as the year Australia woke up to the giant private debt and housing parasite leeching the country of prosperity...."
As linked on several sites over in Aussie, and well written in the original, here:
http://rationalradical.me/2015/06/the-housing-crash-we-had-to-have-a-ge…

by Stephen Hulme | 13th Jun 15, 10:19am 1434147581

To cap it off Citibank proposes a helicopter money drop directly to the citizens to jump start a spending spree - I kid you not.

.... the RBA has engaged in a series of rate cuts designed to boost investment in non-mining businesses as a hope of diversifying the economy from relying solely on China. These have achieved little.

Then overnight Citi's Paul Brennan had a modest proposal for Australia. do another fiscal stimulus for households. From Brennan. In the note, lamenting the "limits to the effectiveness of monetary policy", Brennan says that "the RBA Governor has said he is open to further easing, but noted that of households, government and corporations, “it is households that probably have the least scope to expand their balance sheets to drive spending.”

Actually he is spot on, which is curious why if this is indeed economics 101 do most "western" central banks persist in creating a wealth effect solely for the benefit of the banks, i.e., QE/ZIRP/NIRP, instead of for the people?

Cit continues:

Companies are waiting on households to spend, so that leaves the government. Government debt is low, borrowing costs are low and there is scope to stimulate given that public sector demand fell in the last 12 months. If public sector demand was growing at its average rate, this would push growth in the economy close to trend.

It is true that by comparison with some of its more "developed" peers, Australia debt is lower which is why there will be mass sovereign defaults before anyone even cares about Australian CDS. Especially if Citi's idea catches on elsewhere.

So what does Citi recommend? Simple: making it rain.

Fiscal stimulus to households was successful during the financial crisis. Cash payments to households of around 1% of GDP (half of the size deployed during the GFC) could help lift economic growth close to trend, particularly if the accompanying political message was “confidence enhancing”. By increasing activity and therefore revenue, it would not add materially to the medium term fiscal consolidation task.

Because nothing boosts confidence that "all is well" like the government paradropping money. Read more

by cowboy | 13th Jun 15, 12:20pm 1434154825

so with all the free money proposed, what's the _value_ of a ticket to the ball?

value is not set by production cost, as RBNZ and Fonterra will tell you.

by Stephen Hulme | 13th Jun 15, 12:54pm 1434156872

That's the point. The calculation of value has to eliminated and worth manipulated.

Destroying currency amounts to belittling or ending time value, which is a crucial part of gauging and setting risk parameters in the real economy. If there is no time value to “money” there is essentially no reason to engage in risky behavior. This is what Keynes described of a “liquidity preference” though for different reasons. Instead of individuals holding too much cash, banks will do so because of that same repression. So at the very least, where the central bank is intent on “forcing” spending through negatively manipulating the currency, they are at the same time destroying the financial basis to produce credit – all the while herding financial agents into holding even more “currency” with and without of bearer formats.

How do central banks respond to this, as I said at the outset, irreconcilable elements of monetarism? By deciding that currency isn’t dead enough. Read more

When things start to get sticky:

Yesterday was the quarterly release of the Financial Accounts of the United States (Z1), formerly titled as the Flow of Funds, which means we get updates on the asset bubbles through Q1. That starts with equity valuations, with the components to Tobin’s Q being revised all over the place. The Q ratio is made up of the total value of equity liabilities, nonfinancial (as a proxy for stock prices and values), divided by estimated net worth of nonfinancial corporations.

That makes intuitive sense as rising values in stocks if supported by rising net worth would tend to argue in favor of a fundamental advance opposed to something more artificial. When equity values far outstrip net worth, the vision of an asset bubble is much stronger. Read more

by cowboy | 13th Jun 15, 1:52pm 1434160353

Tell me about it, not so long ago I used to manufacture a real product (kilos milk) it's cost doesn't change much. 1 hectare grass pasture = 2.7 cows = 11000 kilos(litres) raw milk p.a. 20yr old steel and concrete with some upgrades to harvest. bit of annual rubber and cleaning detergents.

But the _value_ well, that went up, and down. Nothing to do with the production or cost of the service.

But the silly financial games, instead of give $$$ cash increase, went down. It would have been lovely if we could have removed the influences on the value, say , like put in a co-op and contracted sales to hold value. But that's not how it works, and the big money print didn't help, neither did RBNZ refusal to adjust/respond correctly until the 13th hour.
But at the end of the day, lower bound is set what what seller is willing to pay for, and upper by what the buyer can scrap together - and our current buyers aren't even blinking yet, let alone breathing hard. And they won't until Auckland, and NZ, close there doors because that "value" is non-real trade, it's all just paper.

by Anarkist | 15th Jun 15, 3:00pm 1434337255

The current tottering economic house of cards rests upon the precarious base of a fundamentally flawed commercial model which falsely measures a firm's financial performance. The only metrics that matter to accountants are ROI and cost per unit. Under GAAP, inventory is treated as an asset with equal liquidity as cash. It doesn't take a stretch to recognize the temptation corporate management have to expedite production without consideration of the requirements of their customers in order to boost quarterly financials and to reduce cost per unit.

The Chinese commodity hypothecation debacle and the global car makers' growing brand new auto graveyards are an inevitable outcome of this perverse system being taken to its logical conclusion.

"The extent of the problem is now recognized to run into the billions: a widely quoted report by Goldman analysts estimates that about USD 160 bln in short-term foreign-currency loans outstanding are backed by commodities. The market value of the underlying commodities may never be fully known, but it is certain that a lot of the cash lent against them is now out of reach."
http://az-china.com/blackchinablog/?tag=hypothecation

https://www.youtube.com/watch?v=qYpLk65rbps

by Henry_Tull | 15th Jun 15, 5:12pm 1434345122

paper and dreams or running the con..

http://www.rightmove.co.uk/overseas-property/property-50951591.html

£3,408,500
Full description:
A captivating fusion of glamorous period style and 21st century modernity, this beautiful renovated 1920's home on 1441sqm recalls scenes from Baz Luhrman's The Great Gatsby. Yet it demurs in an exquisite private, park-like landscaped garden along one of Remuera's most sought-after tree lined no-exit streets. To enter is to fall in love with a feeling of utmost privilege.

The living expands wide through bifolds to a gas heated pool paradise of travertine marble, where water tumbles into a curved weir. Children can play cricket on an expansive lawn, or croquet and family parties. Live an enchanted Grammar Zone dream near top private schools.

Life is more perfect here.

Oh the irony, (for those who can read).

by Stephen Hulme | 15th Jun 15, 5:43pm 1434347015

LOL- might spark an avalanche of hedge fund buyers? Those expecting a lower NZD/USD to lift a load of debt from some tired shoulders might be sorely disappointed.

Stephen Diggle, whose Singapore-based hedge fund made a profit of $2.7 billion in the depths of the global financial crisis, is visiting the small German town of Flensburg this week in a bet the euro’s 12-month slide is almost over.

The euro’s decline against every major Asian currency this year has unearthed real-estate bargains for investors from China to Malaysia and Thailand to Singapore. Diggle’s fund has already bought more than 1,200 apartments in Germany, including many in this town of about 90,000 people, four miles from the Danish border. He’s planning to buy more soon. Read more

No where to hide if interest rates fall or are perceived to do so.

The data are relentless: house prices keep rising, mortgage burdens keep growing, disbelief keeps mounting.

“To say that it’s not a threat, not a potential problem, that would be totally wrong,” Michael Wolf, the chief executive officer of Swedbank AB said in a June 11 interview at his headquarters outside Stockholm.

Finance Minister Magdalena Andersson calls the development “worrying” and has assured Swedes the government is planning steps to tackle the imbalance. Those will include proposals to boost the housing supply. Swedish apartment prices jumped an annual 13 percent in May. In Stockholm, where household debts average 482 percent of disposable incomes, apartment prices in some areas soared more than 25 percent over the past 12 months.

The development follows years of low interest rates needed to revive inflation, with the central bank’s policy rate now at minus 0.25 percent. There’s also a sheer lack of housing as metropolitan populations in Scandinavia’s biggest economy continue to grow. Read more

by Kate | 15th Jun 15, 5:51pm 1434347511

I read somewhere that 15% of American households are still in negative equity - but that is down from 30% being in negative equity a year or so ago. It's a searchable function on Zillow;

http://www.zillow.com/visuals/negative-equity/#4/39.98/-106.88

by meh | 15th Jun 15, 7:19pm 1434352771

That article should be mandatory reading for everyone.

by Stephen Hulme | 13th Jun 15, 10:50am 1434149456

Willing to pay or paid to pay?

Jim Grant said this about our state of affairs.

"My generation gave former tenured economics professors discretionary authority to fabricate money and to fix interest rates.

We put the cart of asset prices before the horse of enterprise.

We entertained the fantasy that high asset prices made for prosperity, rather than the other way around.

We actually worked to foster inflation, which we called 'price stability' (this was on the eve of the hyperinflation of 2017).

We seem to have miscalculated." Read more

by Roelof | 15th Jun 15, 8:34am 1434314098

Thats good... I'm going to print that out..... I think he nails it...!!

by steven | 15th Jun 15, 1:05pm 1434330325

LOL, Jim Grant...ho hum.

by Stephen Hulme | 15th Jun 15, 1:43pm 1434332597

Exactly that which Grant expounds upon here made me and my various bank employers the recipients of an industrial amount of brought forward financial gain in the form of higher sovereign bond market prices up to1998 - at this time I thought it would be obscene not to let others in the trough - it felt like stealing from a baby and yet the same institutions engage in such blatant wealth transfer practices today. I am surprised you still work.

by steven | 15th Jun 15, 2:48pm 1434336527

ah it is interesting stuff. I like Grant for his data mining capabilities, what I ignore generally is his free market mantra. "I am surprised you still work." the way finance is destroying our system by feeding on us, so am I.

by steven | 15th Jun 15, 6:10pm 1434348657

Yet grant makes money from " cart of asset prices" and not from "the horse of enterprise" ie making a good.

So really what we see is Main Street V Wall street and the are opposed. What you want to see is to use the OCR to stop Wall street even if Main street keels over?

"fantasy that high asset prices made for prosperity" its known as greed from un-earned income. So as long as Govn's will not or are unable to reign in Wall street Main street will be chocked to death.

by steven | 15th Jun 15, 6:12pm 1434348760

The Cato institute? a far right wing "think tank" and this is credible how?

by steven | 14th Jun 15, 5:29pm 1434259752

When they want to value the land that roads sit eon in order to get more debt you know we are in an end game.

by Stephen Hulme | 15th Jun 15, 12:45pm 1434329159

Is that not the case with flagship PPP roadworks endeavours ie Transmission Gully? The government avoids public declaration of principal ownership and liability, but pays say 30 years of lease payments with a final demand to buy at a total cost way beyond what is reasonable for a completely sovereign underwritten operation. NPV of cash payment flows would prove a debt existed and lower interest rates would bring the value of that debt forward.

by steven | 15th Jun 15, 2:50pm 1434336605

PPP is one huge con...I am very surprised that after its numerous (always?) failures the opposition parties are not making hay.

by cowboy | 13th Jun 15, 9:42am 1434145344

if it was too expensive to insure then it is too expensive to insure.

Given that a claimable event was due the following year (not that its that predictable but allowing that it was strongly likely, how much do you think the insurers and reassurers would be asking? Considering they also have to claim profit, dividend, wages, and overhead into the premium.
Insurers aren't charities.

Its also why farmers cant insure stock, waterways or fencing. The total asset value vs the risk of claim makes it uneconomic, if you can even find someone who will risk the counterparty position.

by steven | 14th Jun 15, 5:58pm 1434261495

If it had been Chch Ok, but I hardly see Dunedin as a risk? Be that as it may I get somewhat concerned if a CFO decides its too expensive. If its our elected officals, yes OK.

by cowboy | 14th Jun 15, 11:10pm 1434280239

The St Clair lowlands is all claimed land. And much of the one way system and towards the port is reclaimed. The valley before 3 mile hill has much of the hillsides draining into it. And the north end of town, by the park just where the road comes into town, is all very flat with little fall.
It's that lack of fall which doesn't help and many of the waterways which they drain to, are tidal. The tidal issue is one problem but it also makes maintenance tricky with a combination of protected wildlife areas and that alterations to tidal areas can cause unpredicted issues (too much incoming tide, over salination of inland areas and it's effect on hydrophytes, reverse flow/dropping out of sediment, excess erosion (especially without wildlife and plant roots). Challenging stuff according to a friend who was doing his Ecology Degree while I was there.

by steven | 15th Jun 15, 2:53pm 1434336800

Too many ppl all needing a place to live at a price they can afford. Result locations that should be considered as not the best choice are used as they are "cheap". Problem for me is the TCO is starting to not look that hot and that is met by the rate payers.

by busman | 13th Jun 15, 10:41am 1434148912

Once the global unwinding starts wheeler will have to either lower rates again or let the banks take huge loss`s sound familiar ???? investing in Auckland is a huge mistake once china pops there will be a rush out of real estate in Auckland , this will not finish well.
The reserve bank has lost control by lowering rates a big big mistake.

by Stephen Hulme | 13th Jun 15, 10:55am 1434149711

Wheeler caved in to ANZ's demands for net interest margin expansion - the same argument it was trotting out in Australia.

by steven | 14th Jun 15, 5:23pm 1434259397

No....the OCR is there to control inflation which is as near as damn it zero and many SMEs are struggling being under deflationary pressures.

by sharetrader | 14th Jun 15, 6:15pm 1434262538

and by lowering the OCR should lead to more consumer spending to help the economy, but I suspect in will go towards mortgages in Auckland nullifying any positive effect.

by Stephen Hulme | 15th Jun 15, 8:30am 1434313827

Historically, other than mandatory consequential asset price pumps, the lower the rate, the greater the deflation as malinvestment floods the global market with excess goods. Witness milk prices - vicious circle economics.

by steven | 15th Jun 15, 2:57pm 1434337052

URL? ie i cant see any sense in what you are saying.

by Stephen Hulme | 15th Jun 15, 11:46pm 1434368788

Who claims you have to. Url for what? - the money has been banked from that observation.

by steven | 15th Jun 15, 2:55pm 1434336950

Well I guess we'd need to see that as an actual number and not a guess. Considering the position in the past has been that lowering the OCR helps SMEs as a sector nationwide which seems to be in deflation V some suburbs in Auckland going even more crazy i will go with yet more cuts.

by bw | 15th Jun 15, 9:19am 1434316790

The OCR is NOT there to control inflation! It's a by-product psychological tool to control the mass of the NZ public. Inflation Targeting went out the back door a decade ago; never mind about 7 years ago. What causes inflation? Higher prices, and lowering the input component common to all consumer goods - the price of money - can't stimulate price rises. It can only make them fall..
(NB: All on here know what the OCR is - a mechanism for clearing bank daily imbalances. It's impact on mortgage rates is limited by the cost of wholesale funds - that New Zealand has very few of! - and those are sourced overseas. If we had to run the NZ economy with our own funds, guess where interest rates would be! Present levels isn't the answer....)

by Stephen Hulme | 15th Jun 15, 9:50am 1434318636

From the RBNZ:
Historically the Official Cash Rate (OCR) has been a good proxy for the cost of funding for banks. However, the global financial crisis of 2007-2009 and regulatory changes have had a significant impact on this relationship. The move towards banks seeking more stable sources of funding like retail deposits and long-term wholesale debt has changed the composition of funding. The price of these more stable sources of funding has also increased, driven by competition for funds and deterioration in funding market conditions. Thus, the cost of funding for banks has increased significantly relative to the OCR. Read more

by cowboy | 15th Jun 15, 10:25am 1434320712

In theory perhaps, but when you give a powerful authority a specific job (keep inflation between 1 - 3%) and you only give them one tool to do it with (adjusting the OCR), then the reality of the matter is that the OCR is a high level tool to affect (control/influence) inflation.

I _know_ the theory doesn't read like that which is why have to look at the actuals not the dreams and proposals.
---
Oh and lowering cost of production while encouraging the margins to stay high does increase business without affecting prices too much. This can be encoraged by lowering taxation on profit and costs (eg the cost of GST of wage cost & interest recovery).

by bw | 15th Jun 15, 10:36am 1434321418

One tool? Really?! The RBNZ have as many tools as they cares to use - "Whatever it takes", remember? - the RBNZ is part of that Collective. The RBNZ mandate is to Regulate authorised banks. It can do that in one of a myriad of ways - today, tomorrow or whenever. That it chooses not to, just reminds us all that the RBNZ has been ( I was going to say threatened, but instead I'll use) convinced to be 'part of the Collective"., We all remember what happened that last time we took a stand and 'kept the ships out" don't we? We were ostracized for a decade or more. That....was a lesson in 'what will happen if you break ranks' with the rest of .....You want to go it alone? Fine...we'll standby....and watch....."

by steven | 15th Jun 15, 10:36am 1434321376

oh another conspiracy theory, dont you just love them!

by bw | 15th Jun 15, 10:47am 1434322052

Quite right! A Conspiracy, alright. Which country was the first, back in the 90's, to 'target inflation' with the Cash Rate'. New Zealand. That others followed didn't mean it was 'the answer'. It meant "Hey guys! Look, Here's a way to rort the system. Let's all do it" There's the Conspiracy. Before the OCR we had the MCI. Why didn't the World follow that, if we were so ahead of our time? Because it wasn't a mechanism for rorting the system! And before that we ALL had an Open Marketplace of daily cash balancing. There was no end of day "Hi Graeme. Listen, we are a squillion NZ$ short in our Settlement Account with you tonight. Just top is up at 3.25% plus your usual margin would you, there's a good Chap". Banks had to balance their account with each other. and it was a skill and challenge that had worked well for decades. Change always happens. But targeting 'inflation' with the Cash Rate was a disastrous step. One we are paying for now...and will pay for...in the years ahead. Why? Because it in effect allows non-financial, political, fundamentals to control the price of money.

by steven | 15th Jun 15, 11:27am 1434324464

Interesting view point. "on-financial, political, fundamentals to control the price of money." as opposed to who? the free market?

How do you see the system is being rorted?

by steven | 15th Jun 15, 10:35am 1434321306

Well I guess that is a great conspiracy theory....

targeting inflation with the OCR is indeed a weak tool now we have an era of expensive energy. However there is nothing else but to keep it low and go lower.

The OCR actually has a great impact on the retail rate as long as it is significantly higher than the wholesale rate as the banks hide behind it. In the future however as the OCR drops away and the banks cannot follow yes indeed.

present level, yep its too high.

by steven | 14th Jun 15, 5:20pm 1434259238

US retail, "Retail Sales (ex Autos) Turn Negative For First Time Since 2009"

http://davidstockmanscontracorner.com/chart-of-the-day-retail-sales-ex-…