Here are my Top 10 links from around the Internet at 10 past 1pm.
I welcome your additions and comments below or please send suggestions for Thursday's Top 10 at 10 via email to bernard.hickey@interest.co.nz
My huge apologies for missing out Dilbert initially.
That is going down on my performance appraisal. I need to get an app to fix this problem...
1. Ticking time bomb - Jeremy Grantham, one of the world's most renowned hedge fund managers, has warned that Australian house prices need to drop 42%, the Australian reported. He must be very short the Australian banks and stocks. The drums are beating for a house price crash in Australia. Now even the hedge fund managers are talking about it. Bankers on both sides of the Tasman should be shifting uncomfortably in their seats. This would be a major risk for the relatively benign outlook for the Australasian economy and financial system. Let's hope Mr Grantham has never heard of New Zealand...
THE Australian and British housing markets are the last two bubbles left in the wake of the financial crisis, and it is only a matter of time before they crash, warns legendary US investor and co-founder of global investment management firm GMO, Jeremy Grantham.
Mr Grantham famously reported a year before the global financial crisis: "In five years, I expect that at least one major bank (broadly defined) will have failed and that up to half the hedge funds and a substantial percentage of the private equity firms in existence today will have simply ceased to exist".
He said yesterday that Australia had an unmistakable housing bubble and that prices would need to come down by 42 per cent to return to the long-term trend.
"You cannot possibly miss it," he said. "The price of housing typically trades about 3.5 times of family income and in bubble it goes to 6 or . . . 7.5 (times).
"Australia is having one now. You are at near 7.5 times family income . . . which suggests you are twice the size that you should be." "Bubbles have quite a few things in common but housing bubbles have a spectacular thing in common, and that is every one of them is considered unique and different," he said. If the Australian housing market did not return to the normal multiple of family income, he said "it will be the first time in history." "Sooner or later, the rates will go up and the game is over."
2. Going gangbusters... - Australian property investors believe the world has not ended and everything is still fine, this Sydney Morning Herald report shows.
AUSTRALIANS are diving into negatively geared property even as the Reserve Bank signals that another interest rate rise could be only weeks away.
Figures from the Bureau of Statistics show that while lending to buy homes in which to live fell a seasonally adjusted 10 per cent in the first four months of the year, lending to property investors rose 11 per cent.
In the past year lending to investors rose 30 per cent nationwide, and 20 per cent in NSW. ''These investors aren't concerned about interest rates,'' said a BIS Shrapnel analyst, Angie Zigomanis. ''They can see prices rising and real estate looks a safer bet than the stock-market.''
3. Environment not so popular anymore - Australians are now more concerned about the economy than they are about the environment. This Roy Morgan poll shows that people are much more concerned now about their financial futures than the planet's future. This might explain why Kevin Rudd failed to get his Emissions Trading Scheme through and why his mining Super Profit tax is having such a super hard time.
Perhaps John Key needs to look at this poll before he pushes the final button on our emissions trading scheme. Your view? Comments below please.
This special Roy Morgan survey shows that Economic Issues (27%, down 2% since February 2010 and including 5% mentioning the Mining ‘Super Profits’ Tax) continue to dominate as the most important problem facing Australia for most Australians — still led by the Economy/ Interest rates and Inflation (12%, down 2%).
“For the first time since April 2006 Government, Human issues (23%, up 7%) has overtaken Environmental issues (17%, down 8%) as the second most important problem facing Australia. Although Rudd’s decision to suspend the Government’s ETS legislation has not been well received by many, increasing worries about Government and Political leadership (9%, up 5%) and Refugees & Asylum problems (6%, up 3%) has seen this set of issues growing whilst Environmental issues including Climate Change/ Global warming (8%, down 3%) and Water conservation (4%, down 3%) have fallen in the past few months.
“In contrast, Australians are nearly evenly split on the most important problem facing the World with 32% (unchanged) saying Economic issues, just ahead of Environmental issues (30%, down 6%). Within these two — Climate Change/ Global warming (17%, down 7%) and Economy/ Interest rates/ Inflation (16%, up 1%) remain the most important problems facing the World.
4. This might not help - Bloomberg reports that Russia is looking at adding Australian dollars and Canadian dollars to its international reserves. That might drag the Aussie dollar up, and the New Zealand dollar up with it. Brilliant...
“Adding the Australian dollar is being discussed,” Alexei Ulyukayev, the central bank’s first deputy chairman, said in an interview at an event hosted by Bloomberg in Moscow. “There are pros and cons. We have added the Canadian dollar but haven’t yet begun operations” with the currency.
Russia’s international reserves, the world’s third biggest, reached $458.2 billion on May 14. The Canadian and Australian dollars have been among the best performers in the past 12 months as investors speculated a recovering global economy would increase demand for the countries’ raw materials.
5. Pegging the rouble to the oil price? - This strange report from RT.com suggests the Russian Central Bank plans to essentially peg the rouble to the oil price. It's a unique approach, although not widely reported. HT Gertraud via email. Should New Zealand peg its currency to the auction prices for milk powder?
Russia’s Central bank announced on Monday that starting from this month it is tying the Rouble exchange rate to the oil price, in a move which will make it more volatile but reduce speculation.
6. One to watch - It won't happen overnight, but it will happen, Rachel Hunter once said. She may as well have been talking about US short term interest rates (although I'm guessing she hasn't given it much thought...)
Bloomberg reports the US Federal Reserve has tested out a facility that it will eventually use to raise interest rates.
The Federal Reserve said it sold $1.15 billion in deposits in the first test of a credit- tightening tool it may use to drain a near-record amount of cash from the banking system.
Fed Chairman Ben S. Bernanke is planning to use the program, which he says is analogous to a bank certificate of deposit, to eventually help policy makers raise interest rates.
With $1.05 trillion in excess reserves in the banking system, central bank officials are looking for new ways to help achieve their target rate for overnight lending among banks.
7. Chinese bubble report - China's banking regulator says here he sees growing credit risks in the nation's real estate industry, Bloomberg reports. Again, this is one of the big caveats on the benign outlook for the Australasian economy. If China has to slam the economic brakes on hard, which slowed its GDP growth, that would have a flow-on effect for both the Australian and New Zealand economies.
Risks associated with home mortgages are growing and a “chain effect” may reappear in real-estate development loans, the China Banking Regulatory Commission said in its annual report published on its website today. The regulator has told banks to report on risk exposure by the end of June to help prevent a credit boom from leading to more bad loans. Property-price gains spurred concerns that a record 9.59 trillion yuan ($1.4 trillion) of loans extended last year to combat the effects of the global financial crisis may be causing asset bubbles.
8. Act II of the crisis - George Soros, the man who turfed the pound out of the Euro (thank the Lord), now reckons we have just started Act II of the Global Financial Crisis, Bloomberg reports.
“The collapse of the financial system as we know it is real, and the crisis is far from over,” Soros said today at a conference in Vienna. “Indeed, we have just entered Act II of the drama.” Soros, 79, said the current situation in the world economy is “eerily” reminiscent of the 1930s with governments under pressure to narrow their budget deficits at a time when the economic recovery is weak.
9. Totally relevant video - Here's Nouriel Roubini talking with PIMCO's Mohamed El Irian on CNBC about the strong risk of a double dip recession in the Eurozone. Roubini reckons the US economy will avoid a double dip recession, but sees further house price falls and GDP growth below 2%. He sees US unemployment staying about 10% and possibly rising.
Roubini sees little risk the bond vigilantes will stay quiet on the US deficit for now because of the deflationary risk, but keeping deficits at over US$1 trillion a year for a few years yet will eventually cause the vigilantes to revolt. He says Greece is insolvent and that Spain could be worse because the jobless rate there is 20%. It's 14:21 long but well worth a watch. He even mentions New Zealand at 10:47 when he picks out all those countries that needed de-leveraging of the household sector, including Australia and New Zealand.
10. Totally irrelevant video - Here's the highlights of the 1-1 draw between the USA and England -- the Lego version. The goalkeeper is still hopeless, even when he is made of plastic. You'll have to click through. The Guardian doesn't do embeds.
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