Here are my Top 10 links from around the Internet at 10 to 8 am, 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 tomorrow'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. America's debt spiral to come - Karl Denninger at MarketTicker hits the nail on the head with his analysis of the US budget situation.
It is utterly unsustainable.
He makes the point that at some stage there will be an explosive debt spiral that drives interest rates into the stratosphere and bankrupts America.
He makes the point persuasively.
This chart below suggests that foreign buyers of US debt will eventually revolt and/or demand repayment with physical goods (perhaps a nuclear powered aircraft carrier or two) rather than more printed paper.
HT Troy via email.
Here's Denninger's view and this cracking chart:
That graph probably ought to be titled "How do you avoid a Treason charge?" No, not today. We're not at war.
But in the future we're damn-near certain to wind up in one with this chart, and the bad news is that it will come about as a consequence of that foreign ownership and their reaction when the reality strikes - that we cannot pay.
Denninger also points out that Treasury in its spruiking note reckons it will only have to pay 3% interest rates to pension and insurance funds who buy this dreck.
He makes the excellent argument that if pension funds only get the 3% the Treasury wants to pay then the pension funds will blow up...
It all does not compute.
Higher interest rates are coming....or much worse...or both.
Note carefully the "insurers/pension" category.
Do that and the 8% return they're counting on turns into 3% (or the Treasury detonates, since that's the OMB baseline expectation.)
But if they only get 3% or 4% then every Pension fund in the United States detonates instead.
2. Everyone's a fund manager - One thing many New Zealanders don't realise about the Australian pension fund marvel is that over a third of all investments in this A$1 trillion pot is 'self managed'. That means 'mums and dads' are doing it themselves. Hmmmm.
The Savings Working Group called for such self managed funds to be an option for KiwiSavers. See Alex Tarrant's article here. See our KiwiSaver section here.
Here's Stuart Washington at SMH.com.au with some thoughts.
MORE than A$400 billion invested in ''do-it-yourself'' superannuation funds, representing a third of Australian super, has no compensation safety net in case of fraud, industry experts have warned.
The chief executive of the Association of Super Funds of Australia, Pauline Vamos, said many investors put money into self-managed super funds without fully appreciating the risks. Investors in work-based super schemes covering most Australians are eligible for compensation in the case of fraud, at the discretion of the Assistant Treasurer, Bill Shorten.
But there is no such compensation safety net for investors in the rapidly-growing DIY super sector. ''The risks are you don't have a lot of those safety nets, and you have to understand that,'' Ms Vamos said. Jeff Bresnahan, the managing director of the super fund ratings firm SuperRatings, said DIY super had been sold by financial advisers and accountants, leading to its rapid growth, but many investors would not have been told of the lack of compensation when it comes to fraud.
3. Those crazy Australians - The Australian government is so keen to promote anyone but the big four banks that it is planning to spend A$15 million on advertising for building societies and credit unions, Clancy Yeates reports at BusinessDay.
4. Those crazy Brits - A bunch of British Harrier Jumpjet pilots appear to have given the British government a slightly rude send off message in their farewell flight.
Or it could be some fancy work with photoshop. Not sure.
But here's the pic. HT Gareth.
5. Corporate Kleptocracy - The rhetoric of many in business and the markets of a sceptical bent is taking on a disillusioned tone. Here's Ed Harrison talking at Credit Writedowns about how some libertarians have become 'Corporatists' and how dangerous that is.
Many are now questioning the fundamental model of listed corporates driven by shareholders and managers, particularly those of a large multi-national bent.
These corporates seem hell bent on producing short term performance to keep fund managers and analysts (and managers happy), but are doing it at the cost of lowering wages, ripping off customers and destroying the environment. Some are calling it the Ponzieconomy.
Harrison says corporates should not have the rights of individuals. HT Troy via email.
Let’s be clear, corporations are not individuals; they are collections of individuals. Often, individuals hide behind this collective using the corporate veil to shield themselves from sanction for behaviour that abuses individual liberties. In a very real sense, the rights and liberties of businesses and individuals often come into conflict. A real libertarian would always favour the individual in that conflict. A corporatist would favour the corporation.
That’s the difference.Corporatism has nothing to do with liberty. It is all about power and coercion. It’s about favouring the big guy over the little guy, the more well-connected over the less well-connected, the insider over the outsider. And in society that means favouring large, incumbent businesses over smaller businesses, new entrants or individuals.
This favouring of large corporate interests is what Bill Black has been calling Deregulation, Desupervision and De Facto Decriminalization. Dylan Ratigan calls it corporate communism. Ron Paul calls it corporatism. I am calling it kleptocracy. Whatever label you put on this ‘thing’, it is not about liberty at all. It is about entrenching the interests of a select few at the expense of the rest– and that has nothing to do with liberty.
6. Shanghai slowdown? - Shanghai Daily reports that the boom in Shanghai apartment developments may be cooling as the various (desperate) government measures to slow it down start taking effect. Is this the beginning? HT Reece via email who points out: "These will not be one apartment building like in NZ, but a whole block with many multi story apartments or a subdivision of Villas."
MORE than 20 new residential developments in Shanghai have shelved their sales plans amid a rising "wait-and-see" sentiment among buyers because of several tightening measures by the central government, Soufun.com, an online real estate services provider, said yesterday.
Fewer than 100 units of new apartments, located between the Middle and Outer Ring roads in north Shanghai's Baoshan District, may be released to the local market at the weekend, a sharp drop of 57 percent from same period a week earlier, Soufun said.
7. 'You ain't seen nuthin' yet' - British Justice Secretary Kenneth Clarke reckons middle England has yet to see the full force of the UK budget cuts and when it does the political pain is going to be intense. HT Daryl via email.
In a grim assessment of the “calamitous” state of the economy, the former chancellor says he does not envisage “a quick rebound”. This puts him at odds with the Treasury, which believes the return to growth will be swift after the last quarter’s shock fall.
In an interview with The Daily Telegraph, he says: “One reason we’re going to get some political difficulty is that [while] the public knows we’ve got to do something about it, I don’t think Middle England has quite taken on board the scale of the problem.
“That will emerge as the cuts start coming home this year. We’ve got to get on with it [but] it’s going to be very difficult. If someone says it’s not as bad as all that, I say [they] just don’t realise the calamitous position we’re in.”
Middle-income earners already face rises in the cost of living, widespread wage freezes and poor returns on their savings. Many believe that they are already suffering because of cuts, even though the vast majority have yet to be implemented.
8. The drums are beating - The noise is getting through to the Australian heartland about just how much of a bubble the housing market there is. Here's The Courier Mail in the heart of bubble territory (Queensland) talking about a visiting American investment tour group.
MACBETH, of course, all ended in tears and the question now being asked by many investors is whether the Australian property market will suffer a similarly bloody demise. And it is not just Australians.
Increasingly, foreign investors are looking at our real estate market and asking how on earth the seemingly sky-high prices and low affordability ratios can be sustained and if, in fact, the country is near the top of a housing bubble.
One such group arrives next week, when the Motley Fool's international investment team begins a study tour. Don't be fooled by the name, as Motley Fool is a financial services group that has been around for nearly two decades and reaches millions of small investors. When it comes to the Australian property sector, they have three questions:
1: Is Australia's housing bubble bigger than the one in the US? Start of sidebar.
2: What would trigger a correction?
3: Who would get hurt the worst?
9. An emblem for the world - The collapse of Hosni Mubarak's rule in Egypt tells us a lot about the stresses in a world quickly gobbling up key resources such as oil and water, Chris Martenson points out.
Water shortages and oil running out? I'd decode those ideas for you, but they speak for themselves. Food and fuel are running out. The irony here is that she may as well have been speaking about the United States, Japan, or any number of countries across the globe, but any admission of biophysical limits is a good start, I suppose.
Editorially, it's not at all clear to me how the poorly defined concept of 'democratic change' will really change the equation much, as limits are immune to which 'ism' you happen to be running, but I am sure there are some in Washington DC who think ideology can trump reality. Regardless, I am somewhat surprised to see such obvious truths about water and oil being spoken by a senior US representative; it was unclear to me that anyone at that level had any awareness of these subjects at all.
My intent here is not to point out the future difficulties that Egypt faces, no matter who is charge, but to use the change that happened there as emblematic of what we might expect elsewhere, especially in the financial markets. Egypt simply reminds us that anything that is unsustainable will someday change. It is an emblem for the world.
10. Totally irrelevant but excellent music video - This is a catchy little number from New Zealand's Bill Direen and the Builders called 'Do The Alligator' from many many years ago. For nostalgia's sake.
I'm an old man with teenage children, but it was songs like this that got me into the media (student radio). So thanks Bill
21 Comments
Troy - good links, thanks.
Bernard = thanks for 9, but: how do you equate:
"With abundant energy and food, we are treated to expansive and stable economies in which everyone stands a chance of gaining. Not that everyone will, mind you, but the possibility is there In an energy-constrained world, what was formerly possible is no longer do-able, things don't work right, and there seem to be persistent shortages of everything from growth, to money, to food, to goodwill. What used to work doesn't. It is at these points that the prior stresses and imbalances are most likely to snap and suddenly change the world".
with your reply to Basel Brush on the 'Goff/Auckland housing' thread?
re #2
I'd look into going into kiwisaver if I could self manage.
"many investors put money into self-managed super funds without fully appreciating the risks"
Sounds like they're trying to scare people into putting their money with a fund manager. I wouldn't go near them until their fee's change!
And as Warren Buffet says:
Risk comes from not knowing what you're doing.
I agree....I have managed funds from when I was young and in 2008 they lost 22% of 30 years savings....I could see the disaster coming, I sold my "self-managed" shares.......I couldnt get out of the managed ones....
The only thing that makes the managers "winners' is their scale, opaqe practices and ability to milk company profits short term....take away those bad advantages and they are pathetic......This of course means there is a double prong risk for self-managed....not only do they have to understand the compelxity of shares/companies performance but also the effects of the fund whales blundering about in the market and destroying value...
regards
@RC
If I could self manage Kiwi Saver I would join it.
But since you can't self manage Kiwisaver.
I won't be joining it.
Quite happy managing my own funds at present - outside of Kiwisaver.
"And the great owners, who must lose their land in an upheaval, the great owners with access to history, with eyes to read history and to know the great fact: when property accumulates in too few hands it is taken away. And that companion fact: when a majority of the people are hungry and cold they will take by force what they need. And the little screaming fact that sounds through all history: repression works only to strengthen and knit the repressed." -John Steinbeck - Grapes of Wrath
I hope you have your amoury in order then POP :-P
That Martenson piece is particularly useful because it introduces the idea that it is net exports of oil which is important both to oil producers such as Egypt (to finance their budgets) and to importers (to feed their oil demand). Though this concept is very familiar to Peakoil buffs its one that is only slowly being taken on board elsewhere. The idea has probably been most clearly espoused by the geophysist Geoffrey Brown (along with his collaborator Sam Foucher) in their so called 'Export Land model'.
In principle its a simple idea; with time and given static/stable oil production, an oil exporting country (for example a member of OPEC) will tend to have progressively less oil to export as it uses more and more oil internally to feed its own growth. Many of the oil exporting nations tend to have rapidly growing internal oil demands as energy prices within their own borders are priced artificially low to keep the populace happy. As a consequence less oil sourced from that nation is available on the world market. Of course if that nation hits a production peak (as for example Indonesia did) the amount of oil available for export tumbles rapidly as a) internal consumption continues to rise and b) less oil is produced. In the case of Indonesia this led to the country having to leave OPEC as it no longer was an 'exporting ' nation (the E in OPEC).
Now Brown has looked closely at Saudi Arabia (along with Russia the biggest of big fish in terms of exports). This is the NET EXPORT data (from official sources mind!):
Saudi Net Oil Exports Versus US Annual Oil Prices:
2002-2010 (EIA, Total Liquids)
2002: 7.1 mbpd & $26
2003: 8.3 mbpd & $31
2004: 8.6 mbpd & $42
2005: 9.1 mbpd & $57
2006: 8.4 mbpd & $66
2007: 8.0 mbpd & $72
2008: 8.4 mbpd & $100
2009: 7.3 mbpd & $62
2010: 7.4* mbpd & $79
*Estimated
Amazing eh?
In the face of an oil price that was soaring Saudi managed to bump up its NET EXPORTS (ie what the rest of us depend on) briefly to a high of 9.1m barrels in 2005, when the price of oil was a now trifling $57.
Since then DESPITE the oil price being so much higher ie $100 in 2008, the Saudis have been unable to match that net export quantity - in fact their exports have declined markedly.
The reasons for this are 2-fold. Firstly, the internal Saudi market is consuming significantly more of the oil they produce every year (so it never has a chance to be exported). Secondly, despite their protestations about still having large oil resources it seems the Saudis are unable to meaningfully upscale production to compensate for the oil 'lost' to their internal market. So you can kiss the mythical Saudi 'reserve capacity' goodbye.
Many of the other major oil exporters show a similar trend of increasing internal consumption/declining oil exports.
Hard data (such as this) which supports the contention for peakoil is out there, and is freely available. The wonder is that so few opinion formers are actually prepared to go out and do some simple research to see which way the wind is blowing.
hey andy what is NZ's situation re oil/gas? i suspect we are a net importer but by how much do you know?
The med.govt.nz has all this information.
The NZ energy quarterly at the link has a nice graphic that answers your question.
The simple answer is we consume 61.6 Pj and produce 29.4 Pj
http://www.med.govt.nz/templates/MultipageDocumentTOC____45529.aspx
We have tended to bounce around in the past few years as a series of small fields (which unfortunately deplete very quickly) come on line such as Tui and Maari.
See here for crude data (which tends to be a year or two out of date):
http://www.crownminerals.govt.nz/cms/petroleum/facts-and-figures
http://www.med.govt.nz/templates/ContentTopicSummary____20512.aspx
Much of that data is in PJ rather than barrels of oil.
Off the top of my head I would say we probably import about 170-200,000 barrels per day.
Our total oil production (including condensates) at the moment would not be more than say 70,000 barrels per day - its probably considerably less since Tui went into steep decline - it now produces less than 8000bpd as compared to the 40,000 plus it produced 3 years ago.
So the short answer - when Maari and Tui were going full bore (2008/2009) we were probably over 50% self sufficient. Less so now.
We need to find some rather larger fields to become self sufficient for any period.
Edit - I see Neville has linked the same resource, Ta.
On the subject of finding new fields - its worth noting that this seasons drilling program in Taranaki was very disappointing; seven or so exploratory wells as I recall and nothing worth developing found.
NZ has always been a importer afaik.
The light sweet crude we do extract is sold off shore!
Google "car less days circa 1970's " that was a geo- political event. Oil depletion is a never ending car less day, there will always be oil around but can you afford it?
"The wonder is that so few opinion formers are actually prepared to go out and do some simple research to see which way the wind is blowing."
Because if they did they would have to do something about it....
However two things of note, near the end of last year I think the Govn put out a piece (or was written for them internally) which started to show the problem of peak oil.
Gerry Brownlee started talking about how easy it would be to "mine" our methane hydrates....I cant believe anyone would go after that stuff unless there was no other option(s) on the table....My hope is we keep it in the ocean for ourselves....(NZ) and not sell it off shore.
regards
steven on jan28 kathryn ryan did a good interview with John Fleming, its available in the podcast section of itunes
and i see there's a piece in granny herald on him too...
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10693646
"Given the problems with alternative fuel development to date, most observers predict the vehicle fleet will remain largely dependent on oil for at least 15 years. Fleming says we don't have that much time, citing a General Motors estimate that, with greater vehicle use in China and other emerging economies, the world could face a "Saudi Arabia-sized" oil gap within five years."
Bernard, some good links there.
At the moment, I can't stop reading about the bubbles in Aus & China...from many angles they don't stack up...how will all this all end up??
Ricardo asks - "how will all this all end up??
In tears!
A word of advice
If you are contemplating re-locating to AU, be very careful, and do your homework first. Do a reconnaissance trip first. Take an NZD $1 to your local NZ domiciled AU owned bank and change it into AUD and then re-exchange back into NZD the following day and calculate the loss. Once upon a time you could go into a local bank and change currencies at the posted rates. Nowadays the banks have out-sourced that process to an external outfit who are more expensive than the banks ever were, and the bank still adds it's own fee to the total cost so there is a double-dip to you. If you decide to move and have in your possession NZD $500,000 work out how much you will arrive with and thats how much "residential property" you can acquire, somewhere south of AUD $380,000. If you purchase a residential house you will pay nearly $20,000 in stamp duty which leaves you with $360,000 worth of property. Make sure you are in for the long haul. If you should decide you don't like it and prefer to return to NZ, and sell the house your costs will be somewhere around another $20,000 leaving you with AUD $340,000 exchanged back into NZD you will arrive back with less than $420,000
Looks ok to me, Duke.
http://www.realestate.com.au/property-apartment-nsw-sydney-107135664
Did you scroll down to the 'suburb profile'
The most recent median unit price for Sydney is
$2,275,000.
Isn't this one of those serviced apartments in a hotel investments. It would cost a lot more to live there.
Peter Schiff knows what 'smoke and mirrors' are.
http://www.youtube.com/watch?v=fy7c5ye_SuU&feature=feedu
Do NZders?
#1 US debt spiral -
Obama intends to cut 100 Million Dollars from budget.
Sounds big amount? As we have no real comprehension about big numbers, so for a better understanding, watch this:
http://www.youtube.com/watch?feature=player_embedded&v=cWt8hTayupE
A Real Democrat - Yeah Right
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