Bernard Hickey is away today and tomorrow at his daughter's school camp, so the team here at interest.co.nz have put together this alternative Top 10. It's not Bernard's, but we hope you find it worthwhile anyway.
1. How close is America to fiscal crisis?
The US Congressional Budget Office projects that America's 2011 deficit will be US$1.5 trillion, or 9.8% of GDP, and debt held by the public in the 2011 fiscal year will approach 70% of GDP. How close is America to facing a bond market crisis? Should drastic cuts to the budget be made now? Over what horizon should they extend? And what balance between tax increases and spending cuts should be struck? The Economist has nine smart people debating the point, with views ranging from "America is bankrupt" to "There is no fundamental deficit crisis". How this plays out will define the next 50 years.
2. Dilbert
3. Faster growth forecast as US economy gathers steam
Top US Fed officials now expect the output of goods and services in the US to grow by 3.4% to 3.9% this year, up from the previous forecast, released in November, of 3% to 3.6%. But their grim outlook for the job market was largely unchanged: 8.8% to 9% unemployment this year, only one-tenth of a percentage point lower than in the November forecast. Manufacturing shines. But some are not convinced.
4. Auckland's rent crisis
Auckland's rental crisis is worsening, with prices rising 7% in a year and desperate tenants going to extreme measures including offering to pay six months' rent in advance. New figures show rents in the most desirable suburbs have jumped an extraordinary 24%. Last week, the Herald reported how 200 would-be tenants looked through one Kingsland rental property in just 30 minutes. People really like living in desirable, inner-city neighborhoods, but does that really mean we should build more there? "Affordability" is being hijacked to mean people feel they have a right be able to afford to live anywhere they like.
5. The data
| first thing | --- 52 week -- | |||||||
| Today | yesterday | high | low | |||||
| -------- | -------- | --------- | --------- | |||||
| FX rates | NZ$1=US$ | 0.7523 | 0.7520 | 0.7964 | 0.6584 | |||
| NZ$1=AU$ | 0.7544 | 0.7534 | 0.8212 | 0.7408 | ||||
| Gold | in US$/oz | 1,375 | 1,373 | 1,421 | 1,082 | |||
| in NZ$ | 1,828 | 1,826 | 1,877 | 1,546 | ||||
| Copper | in US$/t | 10,107 | 10,147 | 10,147 | 6,091 | |||
| in NZ$ | 13,435 | 13,493 | 13,493 | 8,951 | ||||
| Crude oil | in US$/bl | 84.95 | 84.26 | 91.91 | 69.89 | |||
| in NZ$ | 112.92 | 112.05 | 121.36 | 101.30 | ||||
| US Treasuries | 30 yr bond | 4.66% | 4.67% | 4.78% | 3.61% | |||
| Dow | DJIA 30 | 12,289 | 12,220 | 12,297 | 9,688 | |||
6. Bush and Obama tried and failed, but Republicans may succeed
The U.S. House voted to kill a $3 billion backup engine program for the F-35 Joint Strike Fighter as part of Republicans’ proposal to cut $61 billion in federal spending this year. The 233-198 vote is a sign that House Republicans are ready to cut military spending. They are taking on GE who is lobbying hard for its retention.
7. Winners and losers
New Zealand is a net gainer when food prices rise. But there are plenty of net losers too, and since June 2010 the World Bank estimates that another 44 million people have slipped into severe poverty as a result of these price rises. And, they warn, local emergency 'solutions' to protect the vulnerable can actually make things worse. We have had decades of huge gains where the absolute numbers of people in poverty has shrunk dramatically as populations rose. But there are now challenges to keep the progress.
8. Up and down
On the term deposit front, PGGWrightson Finance have raised their rates for guaranteed deposits for terms of 3, 6 and 12 months. These increases range from +0.15% to +0.50%. They did not change rates for non-guaranteed TDs.
9. A big bond haircut coming
Holders of bonds from indebted European nations such as Greece will need to take losses of about 50 percent as their finances are restructured, says one analyst. And the real test for whether the euro will survive is whether Italy can get its act together. If not, the euro is toast.
10. Can you hear me?
There is an avalanche of demand for mobile data services fueled by the growth in smartphones, and the networks that provide these services are facing a daunting challenge. Maybe there is still life left for a wired world.
No chart with that title exists.
49 Comments
I thought the following article in The Telegraph might lift the veil on the future of elder care in NZ
Baby boomers 'must pay for their own elderly care'
www.telegraph.co.uk/news/uknews/8326605/Baby-boomers-must-pay-for-their…
The Auckland rent 'crisis' shows just how many have had to move there for work in recent times. These are people not used to driving for an hour in the morning traffic.
Bernie Madoff says banks and hedge funds were "complicit" in his ponzi scheme - http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=107…
And China scraps property 'bubble' index - http://www.theaustralian.com.au/business/news/china-scraps-property-bub…
re 5 crude oil it looks like you are quoting the WTI price. Aren't we more affected by Brent crude, now well over US$104 /NZ$138?
Correct neco. I dont know why media here persist on using WTI. It is totally non-representative as can be seen from the latest benchmark crude prices (all of which are at or around $100 EXCEPT the aberrant WTI and the related Alaskan North slope @ $90) :
http://www.upstreamonline.com/marketdata/markets_crude.htm
Tapis is probably a better regional marker for Oceania.
WTI is being hugely distorted by Canadian syncrude coming down recently built pipelines from the North. It represents a localised regional glut (with no easy means of on transport) with little or no relationship with what the rest of the world is paying for oil (as can be seen from up above).
I am surprised interest.co.nz have not made a move to incorporate a more meaningful price marker.
At any rate I expect NZ petrol prices to jump imminently off the back of Tapis rises and NZ$ falls.
As if by magic:
http://www.stuff.co.nz/business/industries/4669081/Petrol-prices-on-the…
The only surprise is that its ONLY a 3c rise. I suspect there will be another rise in the none too distant future. Not long till we go over those 2008 highs.
Hoocooda knowd it?
the future is easy to predict, if you've got a handle on realities.
Read: science and facts.
Which makes no1 a joke - smart people? nonsense - every one is an economist.
The equivlent of getting 9 priests together, debating how far away heaven is in statute miles.
Yes AH - I'd filled up or big tank last week..... :) t'was pretty obvious
"In Feb. 2011, WTI was trading around $85/barrel while Brent was at $103/barrel. The reason that most cite for this anomaly is that Cushing has reached capacity, depressing the oil market in North America which is centered on the WTI price. However, Brent is moving up in reaction to civil unrest in Egypt and across the Middle East. Since stockpiles at Cushing cannot be easily transported to the Gulf Coast for export, WTI crude is unable to be arbitraged in bringing the two back into parity. This large spread is likely to continue until unrest across the middle east subsides or fleets of trucks start hauling oil from Cushing,OK to Port Arthur,TX."
Our NZ refinery is setup for sour, one of the few I believe........so we sell sweet NZ oil abroad and buy back in the "poorer" stuff that is the igher sulphur content.
Both should be roughly equal....
regards
The only thing that may save the day in regards oil pricing for temporary reprives here and there, in the near future, will be demand destruction; but even that will be temporary as the supplies of crude slowly drop off to the point of "its just not avaliable at any price"
Re 4
Sorry David, but you've been suckered by the RE hype on rents.
Auckland rents have not risen by 7%.
During the past 12 months Sth Auckland rents have risen by 2.9%, Central Auckland rents by 2.9% and North Auckland rents by 2.6% (source: tenancy bond data).
It might be true that rents for certain types of property in certain suburbs have risen by 7%, but this is certainly not the general picture.
Let's take it at face value, though, mandk. "Rents have risen 7% in the last 12 months", and property prices have done..... what? That says either (1) people still can't afford to buy at current asking price or (2) they prefer to pay higher rents as they expect the asking price to fall, or (3) - and most likely - people can't borrow-to-buy, so they rent until prices fall enough to bring whatever equity they can muster, into line.
I'm struggling to understand how it's a rent crisis when they are talking about people wanting to move into flash suburbs.
Is this some of veiled suggestion that someone/the government should be helping these people to live in flash suburbs?
The yields on the properties are still probably not great anyway, so all it reflects is the necessary bridging of the gap between house prices and rent prices.
Pay the market price or go somewhere cheaper you can actually afford, gez what a joke.
I have asked one of my tenants (both have good full-time jobs) who have been renting now for 8 years, why not buy your own place, answer we prefer to rent in a really nice neighbouhood rather than having to buy a place that is not in such a great area.
yep.
when you take mortgage interest, rates, insurance and maintenance into account, it probably costs two or three times as much to buy a place as it costs to rent it
Yeah the funny thing is the people that expect to have their rent prices subsidized, probably don't realize they are in effect forcing house prices higher and effectively helping to forever trap themselves in the rent trap.
Mate how is rent a trap? Most lifelong tenants pay much less in rent than home owners paid for their houses. Does everyone really dream of owning a house? My wife and I rented for decades before we finally bought a place of our own and often we wish we'd stayed renting. We used to save a heap in the bank and had investments here and there but while we were paying the mortgage and all the bloody interest on top we were able to save practically nothing. And don't forget the rates and water charges and insurance costs. Before we paid rent and power and phone plus a bit of contents insurance and so long as we did what we had to around the place that was the end of our costs. Houses are like boats -- they say a boat is a hole in the water into which you throw your money, and houses aren't much better especially if you need to sell in a down market like it is now and probably will be for a while to come.
So I don't see a trap there at all.
It's a trap when prices are so high to incomes like now, that a lot of them can't get in without paying cripplingly huge interest bills.
If they are happy to shell out massive amounts of money in rent per week, because they like the lifestyle, good luck to them, but don't complain when it's costing you a small fortune to do so.
Personally I much rather own a house and not need to pay rent for the rest of my life.
Mine's paid off now, it doesn't cost me much a year now, nothing compared to the $35K a year approx, that renters paying cira $600 a week are shelling out.
So, Philthy, you were lucky to buy your first home when prices represented a fair go. The others are right, you have rocks in your head if you BUY your first home right now.
A first home bought now with a huge mortgage is just a super-expensive rental with the Bank as landlord, and a much higher chance of getting kicked out.
If we don't reform the councils and their regulations about development, future generations of first home buyers are going to have to become experts in picking bubble bottoms. And renting for a few years until then.
Yeah I agree, and if rents are subsidized like some people seem to want, all that does it pushes house prices even higher, rather than allowing the price of houses and rents to come back towards normality, and in relation to each other like they used to.
"If they are happy to shell out massive amounts of money in rent per week, because they like the lifestyle, good luck to them, but don't complain when it's costing you a small fortune to do so."
Disingenuous to the max.
The overwhelming majority of tenants do not pay massive amounts of money in rent per week.
For most people, the total average monthly rent is almost always significantly less than the average monthly mortgage payment.
Of course, if somebody chooses to rent a house on somewhere such as Paratai drive, while earning a typical NZ income, then you would be right.
But what percentage of NZ tenants do that? 10% 1% 0.01%?
Sweet FA, at any rate.
Of course, if the country's wealthiest people, our billionaires and other Kings and Gentry, were to pay their employees anything even approaching a decent income, things would be different again.
Yeah well before you get all excited why don't you even read the NZ Herald story this is refering to.
Those expensive suburbs are mainly what it was about...
"New figures show rents in the most desirable suburbs have jumped an extraordinary 24 per cent."
"Harcourts Ponsonby property manager Sharon Ryan said it was not unusual for applicants to offer more than the advertised rental price for homes in Ponsonby, Herne Bay, Freemans Bay and Parnell."
So where's the crisis when it's mainly the most expensive suburbs that are going up largely, especially as some suburbs are going down...
"In some areas of Auckland, however, there has been a slight drop in the median rental price.In Devonport and Takapuna, rents were down 4 per cent last month when compared to the previous January."
"For most people, the total average monthly rent is almost always significantly less than the average monthly mortgage payment." exactly so a correction is overdue, either for house prices to down, or rents to go up.
First, only a fool would trust those numbers. Talk about a biased source.
Second, you PI drones are desperately attempting to convince us - and yourselves - that because a small minority of renters are willing to pay far too much for glam property (assuming the press release numbers aren't completely bogus, that is), the rental market is "going crazy".
Skewing the whole based on an atypical part simply won't and doesn't work, try as you may.
Most people pay a rent they feel they can comfortably afford, although many are feeling less comfort now than previously, thanks to rising commodity prices (not rent), but few are paying anywhere near as much in rent as most homeowners are paying on their mortgage.
This is fact. The only fact that matters, and one that annoys PIs and RE types.
Remember, the people paying high rents for flash places could never service the mortgage on such a house, and would be forced to live in decidedly "downmarket" locations and property were they to trade renting for owning.
These image-conscious types aside, in general it is still far less expensive to rent than buy (or in effect, rent from the bank, long term, with interest).
The only thing which can truly reenergise a deflating property market is a massive rise in average incomes, or an equally massive fall in house prices, or both.
Which is more likely to occur?
My house is paid off, but if I had to do it all over again, I wouldn't: renting just makes far more sense these days.
You're not even reading what I'm write, are you arguing for the sake of it?
Did you miss the bit where I wrote either house prices have to go down or rents need to go up?
So it doesn't surprise me if both of those scenarios occurs to some extent, or even just one of them.
what's truly scary with the petrol price is we have it this high even with the NZ dollar being so strong
Yes....
So if our exchange rates dives and petrol shoots up thats less money in ppls pockets to spend on goods and greater input costs to manufacturers....yet Les etc dont seem to see this as an issue....Taking us from 0.75 to 0.5 will see $3 a litre....
PPl are complain that their tank cost is now at $150 and thats per week some of them 1 1/2 tanks a week....so $2 a litre, $150 down a week, $3 $220 down a week, this money going from the economy and its going abroad...
If it dives then our borrowings go up the same amount as they are mostly in NZD....we get stuffed...........
regards
What am I missing, steven? If we have borrowed in NZ$, and we have a commitment to repay in NZ$, then how does the exchange rate effect us? Surely, it's the lenders that carry the exchange rate risk? If we borrow NZ$1.00 @ 5% and have to repay NZ$1.05 where is the risk? In fact, don't our repayment means ie: exports give us more foreign currency to service the debt component with?
Hmmm read this somewhere, it was better explained....I may have got crossed....but investors wont lend if they see an exchange rate collapse will cost them, next time they will demand a rate to cover that risk or insist in USD.........
Exports do indeed generate income for NZ, however if oil goes up a lot that can easily offset [some of] the gains plus any other neg effects......I'd like to see some numbers on the cost/effect of pushing down to say 60cents...
regards
there's obviously pros and cons to the kiwi dollar weakening. The shorter term consequences would certainly be quite nasty for the domestic consumer, the non-tradeable economy and house prices. The longer term consequences in reorientating the NZ economy towards exports could be positive
steven - a price spike at the petrol pump is not a good excuse to avoid reducing NZD overvaluation and volatility, gradually, because if done gradually, in the way I've suggested in previous discussions (have a re-read) there would be no price spike and the consumer would be compensated via lower interest rate costs and reduced prices elsewhere. The same arguement applies to producers who might see inputs increase, but in addition this is where the value-add component of what is produced becomes more important - because we don't import value-add and so the higher proportion of it the better. (Writing on the wall with that one methinks - Paul Callaghan understands.)
As for foreign funding, again, it's about doing things gradually, but purposefully and adjusting the funding environment so that we displace less of our savings with cheaper funds from offshore. Whatever the denomination of the liabilities those involved can, and do, I am assured, do what they advise our producers to do - hedge. Which would be cheaper if we reduced volatility, meaning more of our producer SMEs would be encouraged to hedge more extensively, which are the very types of businesses we need to encourage to grow - oh no what have I said - grow, growth, groan. Hopefully many would grow toward filling the sustainable type niches that will present themselves as a less energy dependent future unfolds - which is something our present export mix may struggle to do.
As I said, a price spike at the petrol pump is not a good excuse to avoid reducing NZD overvaluation and volatility, gradually, and another reason is the likely future nature of the energy market. It will be more cyclical anyway for reasons I'm sure you and pdk are well aware. So why hold off adjusting monetary and prudential policy in a way (gradually) that will, "help us grow toward filling the sustainable type niches," (apologies for using the 'grow' word again) when we will have little control over energy market dynamics? Instead, why not embrace the change (am puking with that consulant like phrase, but I think it does fit here) and better position ourselves (broader, more diverse export mix) for the kind of future you and pdk are aware of?
Cheers, Les.
Let’s see the big picture here - a significant rise in petrol up to NZ$ 3.- p/litre plus, has the potential to paralyse our economy for days/ weeks with severe consequences. Many people and businesses are financially on breaking point already.
Indeed Walter, the big picture. If NZD is about 20% overvalued and it dropped that tomorrow then that's $2.50/ltr.
However, I've not said that. Please re-read the comment above, gradually, take a whole of economy view - and stop frightening yourself.
What's with having your comment all in bold?
Cheers, Les.
WOW, Gov Chris Christie of New Jersey continues to show all politicians how it is possible to treat voters like adults and tell them the truth:
http://www.aei.org/video/101395
Oh for a John Key like Chris Christie, instead of a John Key like John Key.
That's not truth. That's regurgitated mantra - alle same hare krishna.
Truth is based on fact - maths, science, that kind of thing.
www.physics.otago.ac.nz/.../commons%20revisited%20tragedy%20continues.pdf
http://www.albartlett.org/books/essential_exponential_ch1_recollections…
http://www.hubbertpeak.com/bartlett/hubbert.htm
http://www.chrismartenson.com/blog/egypts-warning-are-you-listening/525…
http://thearchdruidreport.blogspot.com/2011/02/energy-funds-energy-flow…
http://earlywarn.blogspot.com/2011/02/why-oil-matters-more-than-rubber…
http://www.energybulletin.net/stories/2011-02-15/earth%E2%80%99s-limits…
http://sustainablecities.org.nz/members/bob-lloyd/ (try 'the growth delusion'.
Sorry, there's not an economist amongst 'em. Funny that.
That's why I suggest Boolian Algebra - nobody knows what happens, we've never been here before.
If all economic activity requires energy to happen, and you're screwing down the energy supply, who is going to be confident about rating things by the 'law' of supply and demand, and/or by $ numbers?
But - if the demand falls (assuming financial systems are staggering on) then the gaussian curve dips, thus extending the time the URR lasts. That at least is real. Then if demand rises, the gaussian dips, faster each dip. I suspect you get more Egypts, more Pakistans, more Haitis.
The classic gaussian, is this:
but the downside won't be that smooth - because of the symbiotic interrelationship between energy and wealth. I suspect a ragged saw-tooth. For a while.
Basically, folk like me have come from studying the physics reality, realised there's a problem, and run smack into folk who happen to have had the prerequisite generation (it takes a generation one for an idea to lose cognitive relativity - to become a 'given') to adopt an artificial construct like growth-based economics, as if it were gospel. (and I chose the word with care).
But I suspect you really don't want to know. There's a lot of it about. :)
Same generation think house prices will always rise as well.....
"you really don't want to know", nope total denial...."no my lifestyle isnt about to go down the pan"...quack...quack..oops.....wrong....this is geology, physics, maths and engineering, believing in voodoo gets you no where....the data and the history of examples are all there to see....
If Ghawar Field - Wikipedia, the free encyclopedia goes into decline really fast say half as fast as Cantarell Field - Wikipedia, the free encyclopedia then we will be in deep, deep doo doo....
Maybe he's like to look at the nice little chart here, List of oil fields look at the age of the big ones....in fact most of them.
regards
It's not the only thing lacking, by the sound of it
I'm told platforms help with vertial stature. You're on your own with the horizontal. :)
Because its too complex to model SHORT term....one thing is for sure there isnt any more cheap oil....so as in black jack the house plays the long term odds
So the Qs are,
What's the mean oil price over the next decade........thats looking like $90USD....
Can our economies who are used to oil under $50 adjust with out severe disruption, high unemployemnt and civil unrest......um probably....but get ready for unemployemnt past 10%....probably 15%....in the USA past 25%.......
Is $90USD enough to encourage more drilling.....answer probably not.....
Is there much more to be found.........good statistical analysis says we have found 90% of what there is to find....and we have used 50% of what we have found.....So its about 2.1 Trillion barrels, with a max of 2.5Trillion 95percentile....
At what price point does the World's economy plunge back into recession as per July 2008..$100USD? $110USD? $120USD.........it wont get to $147USD....
Are oil/petrol shortages likely........yes.
regards
cheers Steven - I suspect the real tragedy is that there won't be any real debate engagement - just the Emperor-is-fully-clothed-you're-an-idiot type stuff.
Ah well, cain't say we didn't try.
I always understood that these folk weren't going to acknowledge things until they arrived - I think what amazes me is that they seriously baulk at learning now - after the event. The above ridiculing being a standard example.
go well
Guess its education via "market forces" what the clowns dont understand is, NZ is poor compared to other first world countries, we will be well down the queue for oil....our saving grace is we can probably feed our population..........and other countries wont be able to spend the oil to take it off us......
regards
On the money PDK but unfortunately I believe human nature being what it is - the more it looks like things are going downhill the more people are going to deny it - why?
Because they're selfishly making the most of it while it lasts and don't want to think about what they're doing. Like a drug addict and his stash - why save it for tomorrow when you can get high now - worry about tomorrow tomorrow.
Righto, off to ramp up the mortgage and get that V8 ute I always wanted and go hooooning. Then book the around the world trip while it's still affordable.
Nah. Have sold off the hoon car and learning how to sail.
Dollar Bill - good on you. We've done a bit of that - did a year cruising the Queensland coast when the kids were small (10 and 12). Nothing like it, but partners who take to it are rare - I was lucky. Nowadays I race littlies:
http://www.odt.co.nz/opinion/opinion/142927/another-day-office
Of course, if the V8 already exists, then the build energy has been expended. No need to sell it - that won't change things one jot. What is yet to be decided,is how much energy it burns up, doing what?
In which case, maybe it's better in your ownership, than a hooners?
I've got a 1961 International we shoe-horned a 6.2 Chevvy V8 diesel into, a 1936 crawler tractor, and an older Landcruiser. All pre-existing, build energy expended. They only do the jobs they do. Crawler hasnt used $20 of fuel in 3 years.
Interesting question as to whether the aquiring of them displaced a space and drove a purchase of something new, further up the food-chain :)
Whitcouls, Borders, Angus & Roberts go bust:
http://www.smh.com.au/business/borders-angus--robertson-go-bust-2011021…
A bit more unemployment and a few more renters enter the market
Who'd be their landlord? - they'd throw the book at you
Who'd be a landlord.........
I read a while back that the norm for shop rent was 11% of (turnover?) but in NZ it was 14% and the "landlords" thought they could go higher........so of course commercial property is then "valued" on that 14% and not 11%....
Ppl have paid too much thinking they has the position to command yet higher and higher returns........these costs of course flowed onto consumers......and look who owns the high street property....the likes of Axa and Tower pension funds......they like to value their portfolio of commercial property upwards....they dont actually do any work or make a good mind....its a paper exercise....but the pension fund can then say to the chumps that they got good returns....I used to chat to a property manager (god she was hot) she seemed to think getting high returns from lawyers etc was quite doable as she showed off the floor with them on.....then we looked at other empty floors........I think many ppls values are all wrong....cheap energy has insulated us over 2 generations from the outside world....thats comin' back
regards
And a TON of upcoming mortgagee sales.
Some tenants may consider purchasing one of these "distressed" properties at bargain-basement prices.
The problem is that we're still a long way from the basement, so they'll likely just sit back and continue to rent for a while longer.
There's no housing shortage in Auckland. I talked to a new workmate today who found a house to rent three weeks ago in Mt Wellington, she organized the large three bedroom family home while living in Masterton is paying $100 less than the so-called current asking price and the land lord told her he was having trouble renting the place.
A friend of mine took on an empty rental 18months ago....it had been empty a year (and needed some minor work that had been ignored no income to spend on it) and he's looked after/improved it a bit....now the landlord is wanting to put up the rent.....my friend told him before xmas, nope, and that he's off to OZ so wouldnt be renewing....landlord hasnt found a replacement tenant yet....same happened with the previous place...up the rent, nope Im moving out...and this seems common....ie the kids friends who's parents rent seem to move most years.
regards
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