Here are my Top 10 links from around the Internet at 10 to 2 pm. I welcome your additions and comments below or please send suggestions for Monday's Top 10 at 10 via email to email@example.com
1. Tenants in the driving seat - The Dominion Post is reporting that Wellington's rental apartment market is over-supplied, forcing agents to offer two weeks free rent and free carparks to entice tenants in. It seems the opening of the new 326 unit Soho development on Taranaki St is causing some grief. For landlords. Who feel insulted, it seems.
There were 444 vacant apartments on Trade Me yesterday, with 1099 more being built, or due to be, in the city over the next 18 months. Some analysts fear the apartment market will crash.
Realestate.co.nz chief executive Alistair Helm said an enormous range of apartments was flooding the Wellington market. The trend began early last year and the market had "built and built and built".
His company was listing up to 120 new apartments each month. Many developments were started at the end of the market peak and before the change of government in 2008. "They come on to the market and the world is changed." Wellington Property Investors Federation president Jackie Thomas-Teague said the recently opened 326-unit Soho apartment block in Taranaki St was offering apartments at "seriously underpriced" rents.
This was "an insult" to longer-established tenants and putting pressure on the wider market. "If Wellington's not careful it could well end up in a similar situation to [the property crash in] Auckland."
2. 'A snake pit of threats' - The IMF's upgrade of its growth forecasts last night helped boost the Dow and our own currency. However, the Economist pointed out there were a whole bunch of ugly caveats underneath the forecast. It also says the IMF wants more money printing, although even that may not have much impact as long term bond yields are now so low.
Among these “downside risks”: banks could curtail lending because of their exposure to impaired government debt; consumers and businesses could spend less because their confidence has been dented; deficit cutting could suppress growth; new financial regulations could damp bank lending; American property prices could fall further; and exchange rates could go haywire.
And the upside risks? The IMF doesn’t proffer any. Most of these threats stem from the rising risk of default by some countries in the euro zone and the knock-on damage to the European banks that hold their bonds.
The IMF ran a scenario in which the world repeats the financial shocks it experienced in late 2008. For the world, GDP would be 1.5 points weaker–not enough to tip the world economy back into recession. However, the estimated three percentage point hit to euro-zone growth would easily do the job there.
The Federal Reserve faces similar internal resistance to more quantitative easing, although the hurdles are lower. Yet even if it could buy another $1.75 trillion of bonds, it would deliver less oomph than the first $1.75 trillion. Liquidity traps apply to long term as well as short term rates. With Treasurys yielding only 3%, it’s not clear how much more demand the Fed will spur by getting them down to, say, 2.5%. But it’s better than doing nothing.
3. Let's all be prosperians - The economic policy world seems divided at the moment between the Obama/Krugman school of Keynesians and the Merkel/Trichet school of 'Austerians'. But maybe there's something better in between. Umair Haque at the Harvard Business Review has coined a new phrase to describe as different school know as the 'Prosperians'. They want to restart growth in a different way. Worth a look.
Prosperians believe the economy's central problem isn't a lack of demand, or a lack of supply — but a lack of purpose. Prosperianism's foundation can be summed up in a single sentence: 21st century economies can, should, and must have a higher purpose than product. Prosperians believe that the real challenge of the 21st century isn't kickstarting "growth" and churning out more "product" — but reconceiving what is growing, how it grows, and why it grows.
The prosperian agenda is redefining prosperity, so it's more meaningful, authentic, and durable. It's not about just restarting the same old industrial-age engine of GDP, but building a better one.
Who might be said to be a prosperian? The economist Richard Florida, whose work discusses the central role of creativity in prosperity; the eminent Peter Senge, whose The Necessary Revolution fleshes out a wholer prosperity; John Hagel, whose The Power of Pull explains how to redraw the boundaries of industrial age business as usual; Gary Hamel, whose The Future of Management is an ode to higher purpose; and a raft of visionary CEOs including Timberland's Jeff Swartz, Interface Carpet's Ray Anderson, and Nike's Mark Parker.
Not all prosperians agree on exactly what the "right" higher purpose should be, but what they do agree on is the need to move past yesterday's tired debates about product, and begin having a better one, about purpose.
4. Germans just can't win - And it's not just in the World Cup. Germany's manufacturing exporters are going gangbusters, but now the world's developed trade deficit countries are getting grumpy, Der Spiegel reports. HT Ross via email. These persisting imbalances are putting all sorts of pressure on for trade controls. All very familiar. It didn't go well the last time the Germans were stopped from trading with the rest of the world...
Germans are living at the expense of others, say detractors, because the country's trade surpluses mean that countries with already large deficits will have to borrow even more. The Germans, they say, are also gaining competitive advantages in unfair ways, because of the weak euro and a reluctance to increase wages. On top of all that, Germany refuses to stimulate domestic demand, say critics, which would improve foreign producers' prospects of selling their goods in Germany.
For decades, the Germans were admired around the world for their export industry and high-quality products. Now, that has changed. Now, Germany is seen as an egoist who refuses to play by the rules. Once a role model, Germany is now the global bogeyman.
5. Chinese wage inflation - This is a good thing because it will boost demand for imports (particularly from New Zealand), but it may cause a few political pressures in China. AP has a nice piece looking at what the end of cheap wages might mean for China's factory for the world.
A series of strikes over the past two months have been a rude wakeup call for the many foreign companies that depend on China's low costs to compete overseas, from makers of Christmas trees to manufacturers of gadgets like the iPad. Where once low-tech factories and scant wages were welcomed in a China eager to escape isolation and poverty, workers are now demanding a bigger share of the profits.
The government, meanwhile, is pushing foreign companies to make investments in areas it believes will create greater wealth for China, like high technology. Many companies are striving to stay profitable by shifting factories to cheaper areas farther inland or to other developing countries, and a few are even resuming production in the West.
"China is going to go through a very dramatic period. The big companies are starting to exit. We all see the writing on the wall," said Rick Goodwin, a China trade veteran of 22 years, whose company links foreign buyers with Chinese suppliers. "I have 15 major clients. My job is to give the best advice I can give. I tell it like it is. I tell them, put your helmet on, it's going to get ugly," said Goodwin, who says dissatisfied workers and hard-to-predict exchange rates are his top worries.
HT Troy via email, who makes the following point.
My inner cultural anthropologist is really fascinated to see China at the same point that the US was at almost exactly 100 years ago. It is also interesting to see the same labor strike patterns emerging that were seen in both the UK during the Industrial revolution and the US in the early 1920’s
6. The end of empire - Uber hawk (the anti-Krugman) Niall Ferguson reckons Americans don't realise how close they are to losing their empire. He made some comments at the Aspen talkfest a few days ago, the Aspen Times reported in passing.
American politicians don't have a sense of urgency, Ferguson contended. They feel the country can limp along for another 20 years or so in its current financial health without making tough decisions about fiscal policy. He believes they are wrong.
The federal government's debt has grown so large in the past decade that the United States will inevitably devote an increasing amount of taxes to it. Meanwhile it's facing a greater burden through the Medicare and Social Security programs as Baby Boomers age. It's also currently fighting two wars. All that while revenues have plummeted in the recession.
“If you really want to see when an empire is getting vulnerable, the big giveaway is when the costs of serving the debt exceed the cost of the defense budget,” Ferguson said. That will happen in the United States within the next six years, he predicted.
7. 'Vee careful vot you vish for' - George Soros has written a must read essay in the New York Review of books on the problems with Europe's economy and financial system. It is a broad and insightful piece into the problems and who is responsible. Soros blames the Germans for wanting to run a tight budget and says they should be careful what they wish for: to exit the euro.
The error in the German attitude can best be brought home by engaging in a thought experiment.
The most ardent instigators of that attitude would prefer that Germany leave the euro rather than modify its position. Let us consider where that would lead. The Deutschmark would go through the roof and the euro would fall through the floor. This would indeed help the adjustment process of the other countries but Germany would find out how painful it can be to have an overvalued currency. Its trade balance would turn negative and there would be widespread unemployment. German banks would suffer severe exchange rate losses and require large injections of public funds.
But the government would find it politically more acceptable to rescue German banks than Greece or Spain. And there would be other compensations: pensioners could retire to Spain and live like kings, helping Spanish real estate to recover. Let me emphasize that this scenario is totally hypothetical because it is extremely unlikely that Germany would be allowed to leave the euro and to do so in a friendly manner.
Germany’s exit would be destabilizing financially, economically, and above all politically. The collapse of the single market would be difficult to avoid. The purpose of this thought experiment is to convince Germany to change its ways without going through the actual experience that its current policies hold in store.
8. It ain't over yet - Ambrose Evans Pritchard writes in the Telegraph that Germany's constitutional court could cause financial market havoc with a stroke of the pen...very soon. He is an excitable and eurosceptical fellow, but this report goes into the machinations of the court in a lot of depth and is worth a read.
The plot continues to thicken at Germany’s constitutional court, a body with power of life or death over Europe’s monetary union. Contrary to general belief, Germany’s eurosceptic professors have not abandoned their legal efforts to block the EU rescues for European banks exposed to Greek debt, and since May 7 for banks exposed to debt from Spain, Portugal, and Ireland as well.
Should they succeed, of course, the eurozone risks disintegration within days, and perhaps hours. I am not sure that investors in New York, London, Tokyo, Beijing, or indeed Frankfurt quite understand this.A quintet of professors – Wilhelm Hankel, Wilhelm Nölling, Joachim Starbatty, Karl Albrecht Schachtschneider, and Dieter Spethmann (ex Thyssen CEO) – have just broadened their complaint over the Greek part of the bank rescue to include the new €440bn Stability Facility, which breaks EU law at every turn.
9. Totally nutty video - The driver of this car likes being nagged by his GPS...a lot. HT John via email.
10. Totally irrelevant video - This has gone viral. It is an Israeli army patrol dancing to a song by Ke$ha called 'Tik Tok'. I feel slightly uncomfortable about it. But is does say something about the modern media and Israeli soldiers.