Here are my Top 10 links from around the Internet at 10 past 1pm, brought to you in association with New Zealand Mint for your reading pleasure.
I welcome your additions and comments below, or please send suggestions for Friday's Top 10 at 10 via email to bernard.hickey@interest.co.nz.
I'll pop any surplus suggestions I get into the comment stream.
1. Aussies get nervous - The undercurrent of fear beneath the Australian banking system and the financial markets has been bubbling away in recent months, fired up by the much-debated topic of Australia's over-blown (in my view) property market.
First The Economist, then a couple of prominent economists and then some banking analysts, have all questioned the banks' sanguine approach to house prices in Australia.
Now ratings agency Fitch has said it will conduct its own stress test on Australian mortgages.
This spooked the Australians somewhat. Bank share prices fell yesterday.
Fair enough.
“Over the last few months, Fitch has received numerous enquiries as to the sustainability of Australian residential property prices and the possible impacts of a correction,” Ben McCarthy, managing director for Australia, said in the statement.
“While over the short-to-medium term, a downturn is not Fitch’s central expectation, the agency is performing its stress test exercise on ratings impact under the hypothesis of an imminent housing market correction.” Reports published since late July showing Australian home price growth has slowed have led to concerns the housing market is on the verge of collapse. Sales of newly built homes fell 2.6 percent in August from July, the Housing Industry Association said today.
Home values rose 20 percent in the year to March. Fitch’s analysis will examine the impact of three scenarios on dwelling prices: mild stress, with mortgage defaults of 2.5 percent, and a 20 percent drop in property prices; medium stress with 6 percent mortgage defaults and 30 percent decline in prices; and severe stress with 8 percent defaults and a 40 percent price decline.
2. Gareth blasts RBNZ and Basel III - Gareth Morgan tees off in this NZHerald column at the inadequacies of the Reserve Bank of New Zealand and successive governors in the face of the property boom of the last decade.
Morgan says the initial signs are that little is being done to fix it through the Basel III process.
The property boom in New Zealand has been one of the biggest internationally and its consequences are yet to play out fully. The blame lies squarely on the shoulders of successive Reserve Bank governors who recognised the blight but suffered paralysis or brain fade under fire, resorting to monetary policy rather than prudential supervision to sort it out.
The damage caused to the economy over many years was inexcusable, the bills still mounting for taxpayers just one manifestation of inadequate stewardship of the central bank. And now Basel III doesn't really address the issue of risk weighting given to various assets the banks create, rather it merely says they should carry more shareholders funds.
The increase recommended provides little effective tightening on New Zealand's foreign-dominated banking system anyway, and it remains instructed to favour property over all other forms of lending. The supervisory negligence lives on to materialise another day. Pity the taxpayers that have to underwrite such inadequacy.
3. The big guy erupts - Robert Scheer at HuffPo reports that sometime Obama advisor and former Fed Chairman Paul Volcker has warned that the financial system is broken. Here's the full video of the speech, thanks to Reuters. HT John via email.
We know that parts of it are absolutely broken, like the mortgage market, which only happens to be the most important part of our capital markets [and has] become a subsidiary of the U.S. government."
That sentence was quoted in brief mentions of the speech in The New York Times and other leading news outlets but not so his explanation of how this was allowed to happen: "I don't think anybody doubts that the underlying problem in the markets is this too-big-to-fail syndrome, bailout and all the rest."
4. Growing anger - Ambrose Evans Pritchard at the Telegraph reports on the growing civil unrest in Europe as the fiscal crackdown goes on, including a General Strike in Spain. HT Andrew via email.
Voters in Europe are rightly asking why their wages should be cut and their jobs destroyed to save bankers and fund managers from taking a haircut in debt restructurings that should have been done instead of long grinding 'extend and pretend' bailouts and money printing.
More than 100,000 marchers converged on Brussels from across the EU to protest austerity measures on Wednesday, while Spanish unions took the extraordinary step of breaking ranks with Spain's socialist government by launching a general strike. "Workers are on the streets today with a clear message to Europe's leaders," said John Monks, head of the European Trade Union Confederation. "There is a great danger that workers are going to pay the price for the reckless speculation that took place in financial markets.
You have to reschedule these debts so that they are not a huge burden and cause Europe to plunge down into recession," he said, reflecting growing bitterness among ordinary people that they are bearing the brunt of austerity while bondholders have been shielded from losses. Austerity fatigue is surfacing across a large arc of Eastern and Southern Europe, raising concerns that electorates may start to rebel. The Fidesz government in Hungary has already sent the EU and the International Monetary Fund packing, opting for "economic nationalism". Even the police joined demonstrations last week in Romania, hurling their kit at the presidential palace to protest public sector wage cuts of 25pc.
5. 'Smash em bro' - Vince Cable, the Liberal Demcrat Business Secretary in the new British coalition government, said some very grumpy things last week about business people and investment bankers in particular.
Right on brother.
The FT.com reports the comments with a curled lip.
The business secretary told delegates at the Liberal Democrat’s conference in Liverpool that something must be done to shine a light on the “murky world of corporate excess” and unveiled plans for another probe into governance, executive pay and takeovers. He also said that markets were “often irrational or rigged”.
He was particularly scathing about the banking sector. “On banks, I make no apology for attacking spivs and gamblers who did more harm to the British economy than Bob Crow could achieve in his wildest Trotskyite fantasies, while paying themselves outrageous bonuses underwritten by the taxpayer.’’ ”There is much public anger about banks and it is well deserved,” he said.
6. 'Currency wars' - Here's how politicians in the United States are talking right now. Surya Yalamanchili, a Democratic candidate for Congress, wrote this in HuffPo.
Here's what we all face in the real world. Should we ignore it?
China chooses to invest their excess savings in American debt because each passing day only increases their leverage over us. Our position only grows weaker with each passing dollar and so our best chance is to work with the European Union, Japan and the rest of the world to confront these unfair practices.
Currency is just the tip of the China iceberg. We must recognize the current global war for capital and jobs that is being waged.
A war that doesn't deal in rockets or tanks but in factories and financial leverage. Recognizing this new reality will lead us to designing a system of tax, regulatory, educational, and trade policies that set us up for a real recovery and a long-term sound economy. If we don't, our economy will remain on a course of full speed ahead for the Chinese iceberg.
7, Are they serious? - Americans are seriously talking about 0% home loans as the Federal Reserve gets set to buy US Treasury bonds to push long term bond yields lower. The world has gone mad. Here's MarketWatch.com.
Mortgage rates could inch in the direction of 0%. Continued concerns of deflation may also put pressure on mortgage rates. “So long as the Fed allows the word ‘deflation’ to get bandied about, mortgage rates will ease lower,” said Dan Green, loan officer with Waterstone Mortgage, in Cincinnati, in an email. How much lower? “In theory, the only stopping point there is is 0% — that’s where all nominal interest rates have to stop,” said Mike Larson, real-estate analyst for Weiss Research.
8. Counterfeiting documents - The foreclosure scandal in America is worsening by the day. Market Ticker reports from a court document that shows that a US bank was counterfeiting documents to foreclose on properties. This story is going to run and run. HT Troy and Andrew via email. Here's the Zerohedge version.
When the banks cannot manage to produce documents that show you were properly served (because you weren't) or when they can't produce a note they actually destroyed on purpose, they simply counterfeit something and present that to the court instead.
Yet we are expected to obey the law and meet our obligations, from paying our debts to paying our taxes to deferring to alleged authority and law, even when that alleged authority obtains what it gets by defrauding courts and people.
9. Even the seals are migrating to Australia - The Sydney Morning Herald reports a New Zealand fur seal has washed up in a creek in the Gold Coast, alive and well. Reports it asked for a job in Seaworld cannot be confirmed. HT Don via email.
It turns out New Zealanders arrive in Australia better educated and work harder than Australians, this report in The Australian points out.
Far from being a drain on the country's education system and social services, the wave of migrants from across the Tasman is proving to be older, professional and focused on work, says an Australian Bureau of Statistics report released today. Last year, the more than 500,000 New Zealanders living here had higher rates of employment and were more likely to be working full-time than fellow Australians, aged 15 to 64.
About 90 per cent of Kiwi men have jobs compared to 83 per cent of Australian men, the report says, while the percentage of Kiwis working full-time far surpasses the rate of Australians by 10 per cent. Many men end up working in construction and manufacturing while women take up jobs in health care or retail. Of those working in the health field, 37 per cent of Kiwi women are working professional-level jobs.
Over the past two decades, the Kiwi population here has exploded by 89 per cent with 529,200 living in Australia by 2009, according to September 2010 Australian Social Trends report.
10. Totally irrelevant video - I love the Muppets, so here's the latest Muppets spoof of the best vampire series, True Blood (the one with Anna Paquin in it). It's called True Mud. It rhymes.
"Just give me some mud. I need some mud." Instead the grouch/vampire gets a True spud, a True dud and and eventually some mud.
20 Comments
#7 is interesting. Either out of utter stupidity and ignorance, or possibly by design (depends on your POV), the US is determined it seems to destroy the currency. Where they go, we all go of course. I would assume that once faith is lost in the USD$ (which is backed by thin air from which its created), all fiat currencies will go the same way.
Zero % retail lending rates would take us across the currency-collapse/hyperinflation line surely?
Most economic activity takes place in the shadows. Merchants — the most vociferous opponents of a value-added tax, a tax the International Monetary Fund has pressed Pakistan to adopt largely because it would require documentation — make up a fifth of the economy, but carry 6 percent of its tax burden. Out of millions of shops in Pakistan, just 160,000 are now registered for a general sales tax, Mr. Majeed said.
Particularly galling for Pakistan’s middle class is the lack of a federal tax on agriculture, an industry that employs nearly half of Pakistan’s population and whose profits go largely to the wealthy landowners who pack local Parliaments. When the World Bank finally forced adoption of a modest provincial tax in 1997 as a condition for a loan, few paid."
“This system favours elitists, (a system by elitists for elitists) says Riyaz Hussein Naqvi, Pakistani a retired public servant who worked as a tax collector for 38 years. It is a distorted system in which the poor pays for the rich.”
I call that 'economic apartheid'. I wonder, do we have a similar sort of problem in NZ, not to the same degree, but similar in shape? Perhaps leading to the situation we are gradually recognising - a distorted system in which the poor, the young and tradeables pay for the rich, the Boomers and low productivity.
Nil effective asset/land/capital and gains taxation and tax shelters a plenty?
I read somewhere that about 5 to 6% of NZ pop. is involved in NZ's core economic activity - property/land investment/speculation, and that according to the pecuniary interests list, nearly 60% of NZ's parliamentarians are also engaged in this core activity.
Funny that - nil effective asset/land/capital and gains taxation and tax shelters a plenty ....
Cheers, Les.
I've been saying for a long time, that interest rates had to trend to zero, in a 'non-underwritten from here on' world.
That Mike Larson thinks they can only go to zero, though. He's wrong. In a powerdown world, they theoratically have to go negative.
Negatively nteresting times..........
Well, yes, it's not so hard to imagine a time in the US - when the government via Fannie and Freddie own so much housing stock that they pay people to live in them simply to keep vandalism and squatting under control.
Many of the banks already pay people who are being foreclosed on between $3 - 10 grand NOT to take the kitchen, plumbing etc.. with them when they vacate.
#6 Yes this has been on my mind for the past few months now too.
I'm glad Mr Yalamanchilli has seen the iceburg "DEAD A HEAD" as well
"But whats the call gona be "PORT" or "STARBOARD"
Remember just like the Titanic the won't be time to correct if the wrong call is ordered!
Bernard, don't you feel as though your views on an overheated property market are fairly well discredited after your confident prediction of a 40% decline in the NZ market never played out? I'm not sure what makes you an authority on this matter considering your poor record with previous forecasts.
Yes Chris well spotted Bernard's prediction was a bit off the mark!
The decline is still playing out though from tomorrow it will raise too 42.5% hadeehaha!
I dont....and in fact there are lots of good comments that anything above 3:1 or at least 3.5:1 is a bubble....so the options are a crash of 40% over a short period or decades of slow grinding drop...
The Q is how long does it take to get to that -40%....1 year? or 20?
Then consider deflation which is now looking very likely....that ratio is based on current earnings...once we see a depression actual wages can drop....so house price drops could end up having to catch falling salaries or ratio could get insane...look at the comment on sydeny at 9.1:1 that the CBA was trying to hide....huge external pressure...
What happens to rents when ppls wages drop? If we are indeed at about the max rent ppl can stand and they start to get paid less then rents will drop putting even more pressure on the PI market.
So there looks a decent risk of a substantial neg impact for the next decade...-40% still looks within probability...-60% looks possible if real wages start to fall.
I mean what are you looking for? cofirmation that there is one more PI lemming? Make your own mind up and get on with it.
regards
He's got a problem with that prediction, Chris.
What is the money worth, that you and he are comparing things to? Chuck in some fallout from global race-to-the-bottom and QE, and you rapidly get to where the $ is not a static yardstick.
It makes no sense unless it is related to a constant - and there is only one - the price of energy.
If you scale that to '1', then relate everything from that, some things might become clearer.
For how much longer to you blame Bernhard for the prediction of 30% fall in properties. I think a big part, because it didn’t happen were the relatively high immigration figures, which of course are very difficult to forecast.
and lots of ppl are running to OZ now....
hmmm.....
and house prices are going up?
uh no.........
The silly selling season is starting....lets see what looking back from march looks like...
bet its nasty.
regards
Your absolutly right...We would under normal circumstances experience a slow grind down..like at present, Lawyers and Acountants finding it hard to get jobs. Prices going up, incomes static and falling by reducing working hours.This alone fuels the slow downward spiral.Because of the slowness of the decline we tend not to notice it,as each step down our standard of living takes is subtle...their are built in redundencies that fog it as well like cutting out waste ,becoming more efficient .But in the end Decline is decline.Then when their is no more waste to cut out and no more efficiencies to be made..The statement "Restruturing is ongoing" comes to mind..which means their will never be any redundencies in the system....only one thing can break this particular cycle.. http://ipsnews.net/news.asp?idnews=53009
Read em' and weep:
0.9% Over 7 Years Not Good Enough - 30 September
There is a lack of ambition in the tax package that comes into effect tomorrow say the New Zealand Manufacturers and Exporters Association (NZMEA). The additional 0.9 percent growth improvement over seven years projected by Treasury is pitiful considering the Government aims to catch Australian income levels.
NZMEA Chief Executive John Walley says, “An unbalanced tax system was one of the key drivers of the recession. The tax free status of capital gains on land and buildings encouraged excessive domestic debt on low yield assets that stifled the tradeable sector.”
“It seems a long time ago now, but it is important to remember that New Zealand was in a recession by June 2008, well before the collapse of the finance giants in the United States. Our recession was made worse, but not caused by the global problems.”
“Moving taxation from income and company tax towards consumption tax is helpful, but it is only a start. Tax harbours around capital gains must be removed to boost investment in productive activity.”
“We also need to see incentives to invest in our export industries; we need to reinstate both the Research and Development tax credit and the 20 percent depreciation loading on new equipment that were removed by the Government.”
“New Zealand’s long run economic performance demonstrates an abject policy failure; that cannot be fixed by tinkering.”
http://www.realeconomy.co.nz/115-09_over_7_years_not_good_enoug.aspx
However, the good thing is RBNZ, "..... was confident we didn't need to change our monetary policy tools or capital system just yet."
Yeah right!
Peak oil = no growth...
regards
Apart from efficiencies.
Two or three decades ago, efficiencies would have made a difference.
Now I suspect it's a bit like calculating Pi to a squillion places - it never adds up to 4.
Meaning it will be a permanent game of catch-up, with an ever-widening gulf between us and the goal-posts.
Talking of a gulf between the countries. if housing costs have soared by 20% in Aussy over past 12 months and in NZ they have come down, you would want quite a lot more earnings if migrating there
Seems the property prices in aus have stopped and gone backward a tad..or is this just BS in the leadup to the RBA decision...the job advert stats point to an increase in vacancies and the RBA gov thinks the banks are in good shape.....my dosh is on a hike next week.
Every time the RBA decisions approach..you see a raft of horror stories in the media....they wouldn't be trying to influence the Gov....would they!
They'd be bad, wouldn't they
#5 - Vince Cable, what a laugh. Must be great to be in a position where you can effectively spout your mouth to look tough to the media/public knowing that you are not even going to be lisetened to by the financial world. They won't even use the breath to laugh at him.
Go Vince
About the education gap between Mates and Kiwis, you don't have to be that qualified to hammer a rock for gold, it is more about being lucky.
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