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GM in bold revision; US data ho-hum; markets like retail gains; Italy rethinks its budget; Argentina claims new US beef access; UST 10yr at 3.07%; oil bounces, gold holds; NZ$1 = 67.9 USc; TWI-5 = 72.5

GM in bold revision; US data ho-hum; markets like retail gains; Italy rethinks its budget; Argentina claims new US beef access; UST 10yr at 3.07%; oil bounces, gold holds; NZ$1 = 67.9 USc; TWI-5 = 72.5

Here's our summary of key events overnight that affect New Zealand, with news one large industrial is changing its structure in a globally significant way.

American carmaker GM has announced it is cutting production of a range of slow moving models, closing five large North American plants and another 3 elsewhere, and refocusing on electric and autonomous vehicles. The move will cost 14,000 jobs (including 15% of salaried staff) and about US$4 bln in restructuring costs. (It claims that in the past 4 years it has "created or maintained 17,600 jobs".) Tech changes and being ready for trade war fallout is behind the unexpected moves.

This move comes amid some ho-hum data. A measure of US economic activity, the National Activity Index, rose marginally in October, but the gains were minor.

In Texas however, their regional November manufacturing survey came in much weaker than expected, with the expansion slowing there substantially. And that is spilling over to housing as well.

On Wall Street, equities are rising, fueled by gains in retailer shares from unexpectedly firmer holiday sales volumes. The S&P500 is up +1% in early afternoon trade. In Europe, stocks rallied after signs that Italy was preparing to revise the spending plans that have brought tensions with the EU.

Argentina says it is about to agree a major deal with the US on the beef trade, opening up a trade that has been closed for about 20 years. This is a move that may have significant implications for New Zealand's beef trade with the US.

The UST 10yr yield is firmer today at just under 3.07%. Their 2-10 curve is holding low however at +23 bps. The Aussie Govt 10yr is at 2.64% (unchanged), the China Govt 10yr is at 3.43% and up +1 bp overnight, while the NZ Govt 10 yr is at 2.68% and down -2 bps..

Gold is becalmed at US$1,222/oz.

US oil prices have bounced higher today and are now just under US$52/bbl. The Brent benchmark is now just under US$61/bbl, both about a +US$1.50 rise.

The Kiwi dollar is starting today little changed at 67.9 USc. On the cross rates we are similarly unchanged at 93.8 AUc, and at 59.9 euro cents. That has the TWI-5 at 72.5 and off its recent highs.

Bitcoin is now at US$3,745 which is +2% above this time yesterday. But in-between times it has jumped all over the place in a +/-10% range around the current price. It is struggling to find a direction after its spectacular -40% fall below to US$4,000. This rate is charted in the exchange rate set below.

This chart is animated here.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

Daily exchange rates

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37 Comments

Stalinistic Master Plan?? Herald editorial today

"Housing Minister Phil Twyford has announced the scope and powers of a new Housing and Urban Development Authority to be established by legislation next year. Its powers sound gargantuan, extending far beyond town planning and building consents. It will have the authority unto itself to build and change infrastructure, fund it, consolidate parcels of land and reconfigure reserves.

It will also take over the state housing corporation, Housing NZ, and the KiwiBuild programme. Thus it will be a giant landlord, builder and land developer with rights and freedoms no commercial developer would even be given, to override councils' district plans, change existing infrastructure and bite into parks and reserves if it wants them.
Twyford described these as "cut-through powers to build quality state and affordable homes and create thriving master-planned communities""

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Sounds more Jinping than Stalin.

I do struggle a bit with this new lot, no idea on economics and simply repeating the narrative that the banks have been feeding the country through the media.

The housing crisis in nothing other than a major credit bubble - that's what is causing the issues of homelessness, inability of the young to settle and short term landlords.... all aided by one sided tax policy. The supply narrative has very little to do with it.

Regulate the 'credit creation' by banks, remove negative gearing and the housing 'shortage' will disappear in a year or so.

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My understanding is that in a free mmkt as 2nd hand house prices increase, and get ahead of the cost of building new houses , then it is the increase in house prices itself that encourages Developers/builders to build lots of houses... ie.. Its The potential profit and NOT altruism that motivates developers to supply new houses.

In that context... credit and -ve gearing help lift prices to provide that "gap" ( 2nd hand house vs new house ), thus incentivising new supply. ( and then it is the increasing new supply that starts moderating price increases, as the supply/demand dynamic shifts... in theory )

That fact that this has struggled to happen, after massive increases in 2nd hand house prices, suggests there are supply constraint issues as well as New build cost issues..?
I don't understand why u think it is all to do with credit and the that the supply narrative is irrelevant..??

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No..that video does not help , in regards to ur assertion.

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I mostly agree but I dont see credit creation as the issue, if anything its essential and I cant see it being un-stable in nature. It does however need solid regulation ie some hard limits, eg LVR 80% have a nice day. What is the issue on the other side is the [no] tax policy.

"a year or so" would be very fast? more like 5 years, moving too fast could cause a major recession I suspect.

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I mostly agree but I dont see credit creation as the issue,

Most people don't. But there is no doubt that the financiallzation of housing is primarily driven by a retail / central banking system geared towards flooding the market with credit. You could aruge until the cows came home, but it's an uncomfortably undeniable reality.

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Double post

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I.e. cutting through the red tape everybody is so vocal against?

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Fair-ish comment. I think the issue here is the monopolistic power to cut through the red tape. It’s still there for the rest of us!

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Wish they would use their power to cut immigration as promised

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Meet the new boss, same as the old boss.

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It's an admission from Twyford that he has, like Smith before him, largely failed to loosen the strangling grip of Territorial authorities on land supply. With Kiwibuild degraded to a free money for developers scheme, a soviet style central committee approach is probably now the only avenue left for achieving the socialist dream of housing ghettos for the huddled masses.

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I agree... and I like the way u can convey visual imagery with the written word..!! comrade.!

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You are displaying revisionist bourgeois tendencies comrade, only the party should be complimented, it's a one way trip to the Lubyanka for you.

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That would be the Worker's Party (honest), or the Politicians Party?

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If you really want to cut through the red-tape then actually remove it not grant the State the special powers.

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Ah, but that way you don't get to redirect economic activity to enterprises controlled by the state.

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Steady on there, that's right wing extremism. People have been shot for less.

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After Wasting $14 billion on Share-Buybacks, GM Prepares for Carmageddon & Shift to EVs, Cuts Employees, Closes 8 Plants

https://wolfstreet.com/2018/11/26/gm-after-14-bn-share-buybacks-prepare…

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Cool!
So use $14 billion in cash to hold up the share price; lose 10% of that share price in doing so, and now borrow $4 billion to sack 14,000 workers.....It's all going to plan, isn't it?!

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Check out GE as a case study also.

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that's the consequence of a low interest and plenty of credit environment, instead of allocation for future investment it is used to prop up the present, share price.
so many companies in the USA have done exactly the same thing and now interest rates are rising are back to looking at what they should have done to increase shareholder wealth

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No, its a symptom of no point in investing as there is no demand / growth to give a return on said investment IMHO.

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Isn't that the point though? Low interest rates decline naturally when there is a lack of competition for money. They pick up when opportunities abound. In this way the less productive enterprises are disadvantaged. It is an evolutionary system, messy and cruel, yes, but evolutionary. I think this may be the crucial problem with central planning, that it tends to lead to too much specialisation.

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Hmmm, "lack of competition for money [credit]" not sure maybe in a in-direct way. Given a bank can create a loan or more loans as needed if there is a demand, not sure its linear anyway. "less productive enterprises are disadvantaged" again not happy there is a real link here, in theory, maybe. This sort of implies all enterprises are making the same one item, when clearly this is not the case. Its kind of like an un-realistic model economists seem to rely on and it just seems like quick sand.

Central planning has nothing to do with this I can see. I certainly dont agree on too much specialisation in fact the opposite. To me this is a sign of an un-controlled free market method exploiting a need/demand where central planning is simply to slow and cumbersome to do so.

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It's handy that the bitcoin chart re-scales depending on the date start/finish selected.

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Lol GM firmly on board to "make America great again". Not

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So fuel the growth in the size of a business using cheap credit to [car] buyers as we just have to keep growing. Works OK until it doesnt and then find you have a [car] company that is too big for the real demand. Rinse and repeat all over the place, Apple cutting its production, some filings for bankruptcy coming soon I suspect...

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Previous 'credit' excesses a possible cause Steven?

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But isnt this exactly what happens in an un-constrained / controlled market? we wanted this un-fettered capitalism and are reaping its rewards.

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is too much debt always deflationary? I think so.

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Not always ... There have been times in history where the debt burden was deleveraged with hyperinflation.
Credit (debt ) is essentially what creates a "cycle" thou... as ray Dalio says.:

To put these complicated matters into very simple terms, you create a cycle virtually anytime you borrow money. Buying something you can’t afford [out of your capital or cash—JM] means spending more than you make. You’re not just borrowing from your lender; you are borrowing from your future self. Essentially, you are creating a time in the future in which you will need to spend less than you make so you can pay it back. The pattern of borrowing, spending more than you make, and then having to spend less than you make very quickly resembles a cycle. This is as true for a national economy as it is for an individual. Borrowing money sets a mechanical, predictable series of events into motion.

https://www.interest.co.nz/opinion/96943/john-mauldin-takes-look-debt-c…

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you mean destruction of the currency? Thats an option that we probably will only go down as last resort.

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Deleveraging via monetization = inflationary
Deleveraging via austerity and debt reduction = deflationary.

A beautiful deleveraging is when either /or is done in a managed way,,,,
( This is all Ray Dalio stuff ).

It seems obvious to me that the existing "climate" is one of money printing and Govt fiscal spending.
Any "shock" or recession will be fought with those 2 things.... in an instant.
Austerity and debt reduction are not current "political" fashions... in my view.
( People vote for more ...not less )

So when u say last resort.... I'm not so sure...

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The technicals of a cross currency basis swap almost sound like something outside of reality. I have dollars and want euros or yen. You have euros or yen. I borrow them from you, you borrow the dollars from me. I pay the money rate on euros (Euribor, or TIBOR for yen) plus or minus a spread and you pay the money rate on dollars (LIBOR). The basis, essentially the “price” of the contract, moves around based on all those factors.

Except, it really boils down to something very simple and easy to understand. You don’t really have to know anything about the prospects of Euribor versus TIBOR and the outcomes in projected basis gamma to truly appreciate what’s going on in these derivative currency markets. The eurodollar system has made it quite straightforward in practice."
https://www.alhambrapartners.com/2018/11/26/selling-usts-hedging-costs-…

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