Here are my Top 10 links from around the Internet at 10 past 2 pm, 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 Tuesday'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. Really? - The NZX's Mark Weldon and Cameron and Partners' Rob Cameron, both of whom were on the Capital Markets Taskforce, have launched an extraordinary attack on the legislation proposed for the new Financial Markets Authority, which is designed to create a super regulator for investors.
Weldon and Cameron say the bill as it stands would force exchanges overseas and over-regulates a market that isn't broken, the Sunday Star Times Rob O'Neill and Rob Stock report.
Mark Weldon goes so far as to say there had been "no regulatory failure in our public markets"
There may be a debate about that.
Strategic Finance, Dominion Finance, Lombard Finance, South Canterbury Finance and Feltex were all members of the NZX's stock or debt markets.
Access Brokerage collapsed on the NZX's watch and the Securities Commission was very critical of the NZX's role.
Our capital markets are widely seen as too thin and to have lost the confidence of Mum and Dad investors.
Something is broken.
Investors may not describe their collapses as "no regulatory failure in our public markets." Worth a good debate at least.
Mark Weldon, the boss of the NZX, is warning the legislation is "deeply and fundamentally flawed, poorly designed and dangerous". Indeed, he said, unless the Financial Markets Bill now before parliament is massively altered, the NZX would have to move overseas to survive. In a submission to government, Weldon said the proposed laws would create confusion for listed companies and add cost to running registered stock exchanges domiciled in New Zealand.
Weldon, who called for a complete overhaul of the proposals, said he was also concerned the bill proposes giving regulators powers over NZX rules and decision-making, as well as an ability to make levies to pay for their work. If such powers were brought in, emergency capital raisings by firms last year would have been much, much harder, he said.
He also damned the "extraordinary" proposal for the Financial Markets Authority to be able to co-opt and use NZX's own systems, which Weldon said were finely calibrated, as well as being private property.
"The folly of the bill is shown by the fact that NZX would face a lower cost structure, with a higher ability to provide a stable and certain regulatory platform, if it relocated offshore, and provided services into New Zealand as an overseas exchange."
2. Can we really blame the Aussie banks for everything? - Brian Gaynor writes at the NZHerald that the Aussie banks are increasingly dominant in our economy and responsible for a shrivelling of business lending.
Their dominance is also worsening a fragile and thin investment climate, he suggests.
He writes:
The Australian owned banks are far more dominant in New Zealand than they are at home, mainly because the superannuation and fund management industries are much larger across the Tasman.
At the end of June, the banks had 58 per cent of Australian financial sector assets compared with 79 per cent in New Zealand. Superannuation funds and investment managers held 26 per cent of Australian financial sector assets compared with 13 per cent here.
Bank domination is an unhealthy development as far as the New Zealand economy is concerned particularly as the latest figures probably understate the banks' strong position.
The problem with bank domination is that they take a cautious approach to lending, and the number of non-bank institutions that can fund riskier projects is limited. So who will back property developments, start-up companies and other high risk projects? The banks could be tempted to lend to these high risk projects, but this could create huge risks for them and the New Zealand economy.
Essentially the Australian banks, in New Zealand and at home, are asset, rather than cash flow, lenders. They lend against residential property and farms, and this has served them well during the current economic crisis. But it doesn't create a great environment for business, particularly in New Zealand. We are dominated by the banks, and we don't have sufficient non-bank lending institutions, superannuation or managed funds to counter balance the reluctance of banks to lend to business.
But is this all the banks' fault? - Finance companies imploded because they wrote dumb loans for 'investments' in speculative property developments. Our superannuation sector is puny because New Zealanders don't save and we don't have a compulsory savings system.
It's true our banks have fueled the property madness by lending against land.
But the cash flow lenders for businesses are still there. UDC, Marac and others are still lending. The banks were never in this space.
Maybe we all need to get used to investing with equity.
I agree with Gaynor that we need to fix our savings system. But I don't think the banks can be blamed for that.
3. NZF Money's woes - Rob Stock at the Sunday Star Times reports that a borrower of NZF Money's has complained to the Securities Commission that NZF was in breach of its trust deed because of a NZ$10 million loan he had taken out from NZF>.
The Securities Commission is investigating, it seems. Covenant Trustee's Graham Miller Miller says he hasn't seen anything untoward....no worries then...
The complaint is from property developer Bernie Shaw, who claims he borrowed more than $10 million from NZF Money between 2008 and 2010, a sum so large he believed it breached the loan concentration rules in NZF Money's debenture trust deed which limit the firm to lending a total of no more than 10% of total tangible assets to one borrower. NZF director Mark Thornton denied the accusation. "It may have been close, but it never exceeded the 10%."
Trustee Graham Miller from Covenant dismissed suggestions of a breach, referring the Sunday Star-Times to NZF Money. "There's simply no reason to believe there's been a breach at all as far as we are aware," he said.
4. Here's an idea - British Tory MP Douglas Carswell has proposed banning banks from using consumers' term deposits to finance risky lending. He's calling for the partial end of fractional reserve banking. Heresy in a previous day and age.
It's radical, but not all that unusual it seems in the world after the Global Financial Crisis.
Here's his speech to the UK parliament below.
BBC's Robert Peston points out what Carswell is proposing and how he's not the only one.
The Bank of England's Mervyn King says we need to look at highly radical reforms of the banking industry - each of which will probably strike terror into the hearts of those who run our biggest banks. First, there are two complimentary proposals:
1) That retail banking deposits must never be used to finance risky loans, that the all-important payment system should be divorced from providing finance to businesses and even to households.
These ideas have at various times been advocated by the economists Milton Friedman, James Tobin and John Kay - and have a champion in Parliament in the form of the Tory MP Douglas Carswell.
2) That loans to businesses and households should always be repackaged into pooled investments held by mutual funds, so that - in effect - there are no longer short-term liabilities funding long-term assets, there is no longer a mismatch between a demand deposit and a longer-term loan, there are simply investors prepared to take some risk in financing the economy.
This model is associated with Professor Kotlikoff. If banking were reconstructed along these lines, there would in theory no longer be any need for taxpayer guarantees for banks - because bank depositors would not be takings risk or placing bets on the solvency of corporate and household borrowers.
5. Now even the International Energy Agency is saying peak oil was in 2006 - Yikes. This is a worry.
The IEA quietly released a report last week including the chart below showing that peak oil appeared to hit in 2006 and future oil demand growth will have to met from yet-to-be found fields, yet-to-be-developed fields, natural gas liquids and unconventional oil. Early Warning has the early warning.
Truly and profoundly worrying. Here's the full chart pack from the IEA.
Can the world's economies keep growing when oil is constrained like this? Click on the chart to see a bigger version.
6. Even the Saudis are getting worried - Emirates24/7 reports a former head of Saudi Aramco's exploration and production operations as saying oil reserves globally are being depleted at twice the rate of their replacement. HT Andyh
Sadad Ibrahim Al-Husseini, former executive vice president for exploration and production at the government-owned Saudi Aramco, said conventional oil reserves worldwide are depleting at twice the rate of their replacement and this would lead to a supply shortage which could be offset by unconventional oil.
He also rebuffed forecasts that Gulf oil producers would pump as much as 30.9 million bpd in 2035, saying their output would not exceed 26 million bpd. Addressing an oil event in Abu Dhabi on Tuesday, he cited estimates by the US Energy Information Administration (EIA) showing conventional oil demand will rise from around 81.4 million bpd in 2010 to 97.05 million bpd in 2035.
The report by EIA of the US Department of Energy also showed the Gulf region’s production would rise from 23.2 million bpd in 2010 to 30.94 million bpd in 2035 while OPEC’s supplies would grow from 33.9 million bpd to 44.6 million bpd. “Inherent to this forecast is the assumption that it is in the common interest of producers and consumers alike to increase oil supplies according to consumer demand and to sustain such a growth policy for the indefinite future,” he said.
“However, there are several reasons for questioning these assumptions, including the following: conventional oil reserves are being depleted throughout the world at twice the rate of their replacement, historically slow annual capacity declines from major oil fields are being replaced by rapid declines from significantly smaller new developments, and finally marginal new reserves such as arctic and deep water oil accumulations require inordinate new technology advancements and massive funding in order to be brought on-stream in adequate volumes as affordable costs.”
Husseini said that because of these “caveats”, a more realistic forecast of global crude oil supplies based on proven reserves, field maturities, new technologies and sanctioned projects yields what he described as a production plateau that levels off at around 87 million bpd from 2013 through 2019 and declines thereafter to nearly 83 million bpd by 2030.
7. The magic number - How much money will governments have to borrow next year? The WSJ reports the number is US$10.2 trillion or about two thirds of US GDP.
Now much of this is debt that is being rolled over, but gee whiz that's a lot of pressure on interest rates (or printing presses).
I don't think interest rates can stay low next year with this much debt being rolled. Or central banks have to monetise (print) an awful lot to make that go away.
That creates the motherlode of all inflation tinder to be sparked to life at some stage.
Here's the WSJ:
As the debts of advanced countries rise to levels not seen since the aftermath of World War II, it’s hard to know how much is too much. But it’s easy to see that the risk of serious financial trouble is growing.
Next year, fifteen major developed-country governments, including the U.S., Japan, the U.K., Spain and Greece, will have to raise some $10.2 trillion to repay maturing bonds and finance their budget deficits, according to estimates from the International Monetary Fund. That’s up 7% from this year, and equals 27% of their combined annual economic output.
Aside from Japan, which has a huge debt hangover from decades of anemic growth, the U.S. is the most extreme case. Next year, the U.S. government will have to find $4.2 trillion. That’s 27.8% of its annual economic output, up from 26.5% this year. By comparison, crisis-addled Greece needs $69 billion, or 23.8% of its annual GDP.
8. Higher interest rates ? - Alan Greespan, now the world's least respected central bank governor (aside from Gideon Gono), is still watched closely in the United States.
Reuters reports the old codger is saying there is a risk of a bond market collapse and higher interest rates as the bond markets work out the US budget position is unsustainable and investors demand higher returns to justify the risks.
Although the big risk for anyone who believes in a remotely free market is that the Federal Reserve under Bernanke will simply stand in the market to buy the bonds, force down interest rates and monetise the debt. Parity here we come...
"We've got to resolve this issue before it gets forced upon us," Greenspan said of the ballooning U.S. debt levels.
"The only question is, is it before or after a bond market crisis? Because there's no alternative," he said. He said the deficit, which hit $1.3 trillion this year, may begin to frighten the bond market, which could undermine the recovery and push the economy back into recession.
"The big, serious problem is whether or not the outlook for the longer-term deficit spooks the bond market to a point where long-term interest and mortgage rates move up very sharply," said Greenspan. "If that happens, that will cause the double dip."
9. Totally hilarious explanation of Quantitative Easing by the robot video guys - Well worth a watch. HT Steps and Johanna.
"Is this a episode of the Twilight Zone," the bunny asks?
"No. I don't think so," the other bunny replies.
10. Totally relevant if somewhat painful video - A rap about the currency wars.
I doubt this will win many fans in rap land, but it's sort of of funny in a car crashy sort of way.
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