Here's my Top 10 links from around the Internet at 10 to 12pm in association with NZ Mint.
I welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz.
I'll pop the extras into the comment stream. See all previous Top 10s here.
My apologies for no Top 10 on Friday. I was travelling and really struggled to get a decent connection.
1. Euro rate hikes are still coming - Bloomberg reports Jean Claude Trichet saying that the European Central Bank still expects to raise its official cash rate next month.
This is despite the Japanese quake and Tsunami and any hit to global growth from higher oil prices.
Higher ECB rates will also add pressure to the European sovereign debt crisis, making it more expensive for many mortgage borrowers in Spain and Portugal.
It also lifts the interest rate 'curve' for many rates, increasing borrowing costs for stretched countries such as Portugal, Ireland, Greece and Spain.
And there is still no solution to the Irish problem.
Meetings are due on that later this month.
The Irish want lower interest rate on their bailout package. The Europeans want Ireland to raise its low corporate tax rate.
There are mumblings about Irish voters and the government talking about allowing their banks to default.
That would freak out the European banking system, which is up to its neck in Irish bank debt.
2. Mortgages without an end - This fits into the category of an industry in a bubble phase. ING announced plans last year for interest only loans that have no fixed term, Leith van Onselen points out at MacroBusiness.
Now Australia's banks are lifting loan to value ratios, the AFR reports.
We've seen some signs of that here too. It's the same banks.
The maximum amounts banks are willing to lend to clients has returned to the levels before the financial crisis, and some lenders are offering specials that waive the requirement for customers who borrow more than 80% of the value of the property to pay mortgage insurance…
Mark Hewitt, general manager of Australia’s largest mortgage broker, AFG said…”LVRs have loosened in the past month and 95% is the benchmark again. There is strong competition on price and product features, and lenders are keen to get money out the door”.
He noted that some niche lenders were probably offering to lend 100% of the value of the property…
Mortgage Choice spokesperson Kristy Sheppard said…banks were offering 97% loans with lenders mortgage insurance capitalised. This means the cost of the insurance cover is included in the loan…
3. Will the Bank of Japan print too? - The Bank of Japan has aggressively pumped cash into Japan's financial system in the last week, but has stopped short of massive purchases of freshly minted government bonds.
This is often referred to as monetising government debt or 'printing money'.
But the drumbeat for more printing is growing, Bloomberg reports.
With Japan’s public debt already at about twice the size of its GDP, Moody’s Investors Service said last week that the disaster may push forward Japan’s “tipping point” for investors to lose confidence in the nation’s credit quality.
“The unsustainable sovereign debt position suggests that the BOJ will have to bear a bigger funding burden,” BNP Paribas SA strategists wrote in a March 18 note.
“The government spent a lot and sold a lot of bonds after the Lehman shock occurred, and Japan greatly stepped back from the fiscal rehabilitation,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. “The BOJ is basically reluctant to rush in expanding its balance sheet.”
4. 'Just imagine if' - Michael Lewis, the writer of the must-read The Big Short, writes here at Bloomberg about a magazine article he wrote in 1988 about how a devastating earthquake in Tokyo would cause a US stock market collapse and a 5% rise in interest rates.
He says this quake is different to the one imagined then (or the 1923 earthquake that devastated Tokyo and led to a militiaristic government), but Japan is in a weaker position than it was in 1988.
The ratio of Japan’s government debt to its gross domestic product (more than 225 percent) is the highest in the developed world, almost double that of the next-worst basket case: Greece. The Japanese government still owns about $900 billion of U.S. Treasuries, but less honestly. In effect, the Japanese government has borrowed huge sums from its own, increasingly strapped people and used some of that money to fund U.S. Treasury purchases.
The Japanese population, aging and shrinking, is saving less and less. The historically biggest buyers of Japanese government bonds -- Japanese government pension plans -- have recently become net sellers. The country has run through five finance ministers in the past two years, and in ways that suggest the job has become a lot less appealing. (One left for health reasons, another appears to have committed suicide.)
The Dallas-based hedge fund Hayman Advisors, which has been betting that Japan will eventually need to default or restructure, has estimated that a mere three percentage-point rise in interest rates would leave the government using all of its tax revenue simply to service its debt. Even before the earthquake, Japan, to balance its books, was probably going to need to sell a lot of government bonds to foreigners. And those foreigners probably were going to demand a far higher rate of interest than Japanese government pension plans do to hold them. That rate of interest just went up.
5. Radiation dose chart - This is a great graphical representation of the actual amounts of radiation absorbed in daily life compared with the stuff from Fukushima and elsewhere.
Click on the chart at XKBD for the full readable version.
6. You've been warned - Bloomberg reports the IMF's Deputy Managing Director John Lipsky has warned that mounting debts in developed economies such as the US, Japan, Europe (and Australasia) are unsustainable and risk creating a future fiscal crisis.
Each 10% increase in debt slows real economic growth by 0.15%.
New Zealand is about to add about 10% to its public debt to GDP ratio in the next couple of years.
The average public debt ratio of advanced countries will exceed 100 percent of their gross domestic product this year for the first time since the war, Lipsky, the IMF’s first deputy managing director, said in a speech at a forum in Beijing today.
“The fiscal fallout of the recent crisis must be addressed before it begins to impede the recovery and create new risks,” said Lipsky. “The central challenge is to avert a potential future fiscal crisis, while at the same time creating jobs and supporting social cohesion.”
Long-term bond yields could climb 100 to 150 basis points, driven by the 25 percentage point rise in sovereign debt ratios since the global financial crisis and projected increases in borrowing in coming years, according to Lipsky.
While interest payments on debt have remained stable at about 2.75 percentage points of GDP over the last three years, “higher deficits and debts together with normalizing economic growth sooner or later will lead to higher interest rates,” Lipsky said. The IMF estimates fiscal deficits for developed nations will average about 7 percent of GDP this year.
The cost of repaying debt would increase by 1.5 percentage points of GDP by 2014 even if interest rates rise only about 100 basis points, Lipsky said. IMF studies show that each 10-percentage-point increase in the debt ratio slows annual real economic growth by around 0.15 percentage point because of the adverse effect on investment and lower productivity growth, according to Lipsky, a former chief economist at JPMorgan Chase & Co.
7. Greenspan was the Godfather - Dylan Ratigan at MSNBC does his thing on the Too Big to Fail banks and Greenspan's Put.
This stuff is starting to go mainstream now. It's unusual to see both Ratigan and Glenn Beck on the same side on anything. They're both haranguing the Federal Reserve, in slightly different way.
Interestingly, Ratigan says the banks have spent US$344 million lobbying against efforts to re-regulate banks...
So much for democracy.
America is a corporate run plutocracy.
8. Less than half sold - At half price. The Southland Times reports that just 8 out of 19 sections being sold at Jacks Point near Queenstown by Allied Farmers.
It seems Dunedin urologists are doing OK in the recession.
Nineteen sections at Jacks Point on land previously associated with failed firm Hanover Finance were up for sale during a silent auction. Overall the lots were worth about $11 million, the expected price tag was less than $5m and the eventual sales amounted to about $1.4m. Most of the lots were bought by overseas bidders.
Urologist Naryan Sampangi, of Dunedin, successfully bid for a lot, where he plans to build an eco-friendly home for business use and holidays. At a reduced price it was a reliable investment, he said.
"You're not going to lose much, I don't think you can get a better place than this, for retirement, for a holiday, for the weekend," he said.
9. Stiassny's racing dramas - I don't often look in the Waikato Times' racing section for news. But this is a cracker. Michael Stiassny is well known in New Zealand's corporate scene as a very influential, and occasionally controversial, character. He chairs the Vector board and is New Zealand's most prominent receiver at Korda Mentha.
He's also the chairman of the New Zealand Racing Board and has pushed a few buttons there it seems. Here's some of the background. The detail is ugly and Stiassny rightly reacted aggressively. The bloodstock agent appears to be one of these 'colourful racing identities' they talk about in Australia.
High-profile bloodstock agent Rob McAnulty is facing up to eight months disqualification as an owner after he yesterday admitted verbally abusing New Zealand Racing Board chairman Michael Stiassny.
Through his lawyer, Simativa Perese, McAnulty pleaded guilty at a Judicial Control Authority hearing at Ellerslie to charges of misconduct relating to his using ''foul, insulting and offensive words'' directed at Stiassny and also chief stipendiary steward Cameron George in voicemail and email messages.
Stiassny has also been aggressive in targeting drug cheats in racing, which seems fair enough. Here's some more at NZHerald.
10. Totally irrelevant video - Here's that video I promoted on Thursday without getting the link right. It had 300 views when I first linked to it. Now it has over 6.8 million.
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