Here's my Top 10 links from around the Internet at 10 past 6 pm 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 yesterday. Just got swamped with these dang news things. Note to self. Must ignore more news.
1. Bubble spotting - Yale University Professor Robert Shiller is renowned as one of the guys behind the Case-Shiller index for house prices in America.
He also thumped the table warning years back about a bubble in the US housing market. If only everyone had listened...
Now he's saying farmland could be the next asset bubble globally.
Are New Zealand dairy farmers and their bankers listening?
Perhaps New Zealand's bubble has already burst.
Whatever the case, there seems to be one building in America and Britain as high commodity prices and the thirst for hard (non-paper) assets pushes up prices.
2. Shiller writes here at Project Syndicate about why Farmland might be the next bubble.
My favorite dark-horse bubble candidate for the next decade or so is farmland – and not just because there have been stories in recent months of booming farmland prices in the US and the United Kingdom.
Of course, farmland is much less important than other speculative assets. For example, U.S. farmland had a total value of $1.9 trillion in 2010, compared with $16.5 trillion for the US stock market and $16.6 trillion for the US housing market. And large-scale farmland bubbles are quite rare: there was only one in the US in the entire twentieth century, during the great population scare of the 1970’s.
But, farmland, at least in certain places, seems to have the most contagious “new era” story right now. It was recently booming, up 74% in real terms in the US in the decade ending with its price peak, in 2008. And the highly contagious global-warming story paints a scenario of food shortages and shifts in land values in different parts of the world, which might boost investor interest further.
3. Finally a bank regulator says no - Reuters reports the US Federal Reserve has objected to Bank of America's plans to increase its dividend. They'll go back again though.
BofA had hoped to be in a second wave of banks raising dividends in the second half of this year. Unlike some of its major competitors such as JPMorgan Chase & Co and Wells Fargo & Co, Bank of America is still struggling to be consistently profitable and, by some measures, has less capital.
The largest U.S. bank by assets did not give a reason for the rejection, and said it intends to submit a revised proposal to the Fed and still hopes to increase its dividend in the second half of the year.
4. 'Not so fast...' - The supermarket wars in Australia are fun to watch from a distance. As a consumer we're all jealous at the loss leading prices being offered for milk and other staples, although it is brutal on any producer who wants to build a brand.
Luckily for Fonterra it is not too exposed in Australia.
But now one of the producers has fought back.
The Age's Adele Ferguson reports Foster's has pulled supplies of its VB, Carlton Draught and Pure Blonde beer from Woolworths' Dan Murphy's chain and Coles' First Choice chain after it learned they were about to start selling them for A$28 a slab, which was well below cost.
A spokesman for Foster's said the company withheld supply to protect equity in its brands. "We take loss leading of our brands very seriously," he said. "We will consider our options when it comes to individual cases of loss leading."
It is understood that for at least three days some liquor stores were forced to put up a sign explaining why they had no VB for sale. Some signs said: "We're out of stock because Foster's, the supplier of VB, says we are selling it too cheap."
The move by Foster's to take on the retailers, who control 50% of Australia's liquor distribution, has been described by industry experts as gutsy. It is also unprecedented. There is no other known case where a supplier has taken on the supermarket giants head on.
The milk industry, which has been subject to similar price discounting wars by the supermarket chains, was unable to beat the retailing giants as they are not known brands and therefore do not have the same clout.
5. Some hard numbers - It's been difficult to know just how many people have left Christchurch and where they've gone. ANZ has estimated a net 15,000 might leave Christchurch and stay away over the next year.
Now we have figures from Statistics NZ showing that 7,287 Christchurch schoolchildren have re-enrolled at schools away from the Christchurch, Waimakariri and Selwyn school districts as at March 23 have not returned to Christchurch yet. Assuming 2 other people per child has also left, that means around 21,000 people have left.
6. 'Just in time' - The full impact of the Japanese disaster is not clear yet, but some surprising things have happened. Colin Johnson at SmarterTechnologies reports that the earthquake and Tsunami have shut down 25% of the global semicondutor raw materials market.
These wafers are used in everything from motherboards to mobile phones to cameras.
The raw silicon wafers that chip makers use as a foundation for their memories, logic and processors are no longer being manufactured across Japan as result of the earthquake, tsunami and continuing seismic aftershocks.
Last week, Intel and Qualcomm tried to assure worried stockholders, claiming that Japan's Tohoku earthquake would not create shortages. Analysts nevertheless predict that the current drop in semiconductor manufacturing capacity in Japan will soon create shortages in many electronic product supply chains.
7. A very expensive Top Gun - The Atlantic writes in detail about the culture of waste in the Pentagon and how the Tea Parties are ignoring it. The details of the F35 (pictured below) spending are staggering.
We're spending more on this plane than Australia's entire GDP ($924 billion). The F-35 is the most expensive defense program in history, and reveals massive cost overruns, a lack of clear strategic thought, and a culture in Washington that encourages incredible waste.
Money is pouring into the F-35 vortex. In 2010, Pentagon officials found that the cost of each plane had soared by over 50 percent above the original projections. The program has fallen years behind schedule, causing billions of dollars of additional expense, and won't be ready until 2016. An internal Pentagon report concluded that: "affordability is no longer embraced as a core pillar."
In January 2011, even Defense Secretary Robert Gates, a champion of the aircraft, voiced his frustration: "The culture of endless money that has taken hold must be replaced by a culture of restraint."
We used to be content to outspend Australia on aircraft. Now we literally spend Australia on aircraft.
8. How academic economists were corrupted - Inside Job director Charles Ferguson speaks here about how Wall St corrupted academia as well as politics. Those who viewed Inside Job will remember the exchange in the movie with Glenn Hubbard.
9. A very stressful test - Bloomberg reports Standard and Poor's has estimated Europe's banks would need a cool US$355 billion in fresh capital if there was a sharp increase in interest rates and a severe economic contraction.
This crisis is far from over, as we saw this morning in Portugal. Meetings over the next two days could prove crucial.
The ratings company imagines three stages happening from 2011 to 2015, including soaring yields triggered by an interest- rate shock, restricted market access for weaker sovereigns and a “very severe” downturn in the economies of Greece, Ireland, Portugal and Spain. Under this scenario, stress in Italy would be “substantial,” while in France, Germany, the U.K. and the rest of the European Union it would be “moderate,” according to S&P.
Of S&P’s sample of 99 financial institutions covering 70 percent of Europe’s banking system, 22 would need new capital at a total cost of about 161 billion euros, according to the report. Extending that to the full European banking system would cost 200 billion euros to 250 billion euros, or about 2 percent of economic output of those lenders’ jurisdictions, S&P said.
“The overall effect on the creditworthiness of western European countries, if it were to happen, would be severe,” S&P analysts led by Paris-based Chief Credit Officer Blaise Ganguin and European Economist Jean-Michel Six, said in the report. “It would lead to substantially higher debt levels for all sovereigns throughout the region; hardly sustainable fiscal positions,” as well as the bank recapitalizations.
10. Totally bad hair day - Lewis Black at The Daily Show reckons Donald Trump would make a great US presidential candidate...The last minute is brilliant.
"What this world needs is a crazy third world dictator."
35 Comments
Bad Link on Number 7. Should be:
http://www.theatlantic.com/national/archive/2011/03/the-f-35-a-weapon-t…
Will
Many thanks for spotting.
Fixed now.
cheers
Bernard
You also forgot the HT.
S'aright, I forgive you,
Sorry. My bad. I get the emails and open up the link and save it. Then promptly shut the email and forget who gave it to me. Will try harder. Will have to find a better system.
Lovin' these links.
Keep em coming
cheers
Bernard
According to the WSJ New Zealand is the world's second most fiscally responsible nation in the world. Behind Australia. We always lose to the Australians....
http://online.wsj.com/public/resources/documents/st_usdebt01_20110323.h…
Methinks this analysis is missing a few things....or everyone is even more stuffed than we are...
cheers
Bernard
They must have been looking at it from an historical perspective over a favourable period of time. As Treasury points out - we lost our way in 2008;
The pattern of consolidation reversed in the late 1990s, mainly driven by significant tax cuts. The 2000s saw the structural primary balance initially stabilise at a modest or zero level (depending on the view taken about the cyclicality of growth over this period). Policy easing in the 2008 Budget led to a rapid and significant deterioration in the structural fiscal position, resulting in the largest structural deficit and largest deterioration in any one year over this time period.
http://www.treasury.govt.nz/publications/research-policy/wp/2010/10-08/10.htm
Such a pity that National didn't immediately get to fixing this. Instead they dug the hole deeper in three very short years, and now we enter this crisis event from a very poor position.
And here's Martin Wolf at FT.com on India's corruption problem
http://www.ft.com/cms/s/2/3c5009ba-53f2-11e0-8bd7-00144feab49a.html#axz…Sonia Gandhi, president of the ruling Congress party, remarked bleakly that India’s “moral universe was shrinking” with faster economic growth. Rivals speak of a “malignant nexus” of corporate and political interests at the heart of modern India. Manish Tiwari, a Congress MP from Punjab state, invokes Winston Churchill to warn that India is in danger of throwing away its economic opportunity and could suffer “locust years” similar to the early 1930s in the UK, which were characterised by economic decline.
8) The "nuclear power" lobby etc.
Interesting I was listening to that 3 days ago. I my opinion that is one of the greatest problems of societies, occurring in all different fields of economics.
Big co-operations forming lobby groups, which are targeting politicians for their greed and profit.
Here part two: http://www.youtube.com/watch?v=WHgqTlntD6c&feature=relmfu
Such structures are well organised and are often unethical not respecting democratic processes.
Part three: http://www.youtube.com/watch?v=iAbi8OaDd6M&feature=relmfu
4 http://www.youtube.com/watch?v=EVw0-KvjOU0&feature=relmfu
5 http://www.youtube.com/watch?v=Jl_H6cgSVDk&feature=relmfu
The nuclear power, the oil lobby are just examples how dangers these secret societies are, having the potential to destroy our environment and life’s.
re 7
funny how the tea party are always talking about govt spending but don't mention all the wasteful military spend
Something I've long contemplated is think of all the good that could be done if the whole NASA programme was cancelled and that money was put into social and environmental needs
Are we really going to learn anything much more revealing about the universe now?
I know thats countered by the argument that its a key part of humanity to want to explore etc etc
But I don't really buy that
Matt - I think you have to cap populations and demand, or it just gets swallowed up.
Yep, it comes down to the (morally) unsolvable problem of numbers......some are saying if we all became vegitarian well everyone would be fed.....for some more years....until the population climbs to take away that "gain"....then what do we switch to? about all I can think of is canibalism....
I think the telling piece I read was Ethipoia ? (I think it was) they had a population of 40million but were starving, so that got fixed by introducing farming (or whatever) etc...so the population doubled and now they are starving again......and the projection is they will grow to 120million.....so what was actually achieved? nothing....At some stage you have to recognise you cant carry on this way and it has to be corrected or Nature will do that for you....starvation it seems is one of nature's contraceptives....
regards
Steven, try reading Marvin Harris "cannibals and kings: the origins of culture". He an antropologist and decsribes what you're saying about ethiopia as a permanent feature of humanity. When things are good (enough food etc..) populations expand, then at some point they reach a crisis, then the population has to fall or a new technology comes in, when a new technology comes and things are good again, the same cycle happens all over again
Curious. Why then do the richest societies have falling birth rates?
I actually think population decline will the biggest economic problem towards the end of this century, particularly in China as its one child policy works through the system
cheers
Bernard
....that's a new phenomenum. Historically, what Marvin Harris talks about is throughout history populations with good food supplies and resources expand until they get themselves into a crisis (usually an environmental one where they can't feed everyone). At a macro level that is sitll happening today. The world population is projected to expand from 6 billion to 9 billion by 2050. But you're right, rich countries now have declining populations (perhaps the 1960s with brith control etc...have altered it for us).
I agree that this will be an issue for China. The Chinese government is already trialling a 2-child policy for some urban dwellers (e.g. in Beijing and Zhengzhou) because of long-term concerns about an aging population. Previously only rural dwellers were officially allowed to have a second child (especially if the first was a girl; not considered so useful for working in the fields!) Apparently the government is even having some difficulty in encouraging people to have more than one child, because the idea of one child has become so entrenched, and because of lifestyle changes that make having two children just too unattractive for many.
A related strain for Chinese workers is the 4-2-1 problem. Have discussed this situation with my wife several times. One person (or a couple) financially supports potentially four grandparents, two parents, and of course a couple with a child will also support their own child. Although incomes, business opportunities, and investment opportunities are increasing in China, so are expectations, especially for the parents' generation, who, along with the grandparents, are also tending to live longer, meaning that supporting six seniors at once becomes increasingly likely. The expectations of the older generations will almost certainly increase faster than any welfare system improvements that the government might make, and this means that there is a greater strain on young couples to financially care for all of their family to the increasingly-high standards that they will expect. Plus you really need medical insurance or your own medical funds, because nothing is free in Chinese hospitals (although govt does subsidise), and the old folks need medical care, despite generally living longer.
Expectations for raising urban children are also on the increase, making it a more expensive proposition to raise a child, who are now expected to be put into quality preschools to that they can get ahead early to outcompete the rest, as well as doing ballet, piano lessons, English lessons, etc. when slighly older. Having two children, when weighing up these household economic issues, becomes increasingly difficult. Combine this with the big-city housing bubble going on, especially in Beijing and Shanghai, as well as general inflation, and there is often a real source of strain for young Chinese of working age (assuming that you can even find a wife, if you're a single young man who doesn't own his own house!) At least some of this strain is offset by savings-oriented budgetting that tends to be the norm in Chinese culture, which means that some entrepreneurial people of the parents' generation already have their own private retirement funds.
As far as populations go, I would hazard a guess that most biological populations tend to increase to the maximum capacity of the systems that they're a part of (witness plagues of mice, rats, birds, etc. in years with good food supply, which then collapse and/or migrate after the food is exhausted). Are humans different? I guess we're supposed to be more rational and calculating than animals. I guess the Chinese experience suggests that we can be, with some form of family-planning policy and big-picture approach (but the Pope doesn't approve ;)
JetLiner
Why the hell do people always pick on NASA when they want to go on their social spending sprees? There are a million and one wasteful things governments and societies do that burn through cash that could be spent on social spending, maybe pick on them instead of an institute that actually broadens human knowledge and achievement.
Look at this (apologies it's from the Daily Mail, but I couldn't find a better source)
similar road damage in CHCH has taken just under a month to fix, the roads are the one improvement in CHCH since the earthquake....
Rubbish, only superficial repairs have been completed so far. All major works have only just begun. The closest thing we have to the damage in that photo is on Fitzgerald Ave over the river and it is still stuffed. They only started clearing the debris yesterday and they look set to begin works today.
http://peakoil.com/consumption/relating-per-capita-gdp-to-petroleum-con…
"I used Sieminski’s plot, and several others, to support my argument that oil consumption and standard of living (as approximated by GDP per capita) are tightly linked. My thesis was that if a country’s oil consumption goes down (e.g., because domestic production declines, or, because there is less oil to import) then that country’s standard of living will go down more of less contemporaneously and proportionately."
We were presented with stats during technology papers last year that GDP=energy consumption. No argument there at all..... well if there is I haven't seen it presented.
Might be running our cars on woodgas before much longer, although like high food production, NZ is lucky to have that resource.
This guy Robert Schiller either isnt that smart or hasnt done his research or even followed basic commodity supply and demand for ag products. 1) The world is short of agricultural products. 2) farmland unlike housing is an essential highly productive asset. 3) the price of the land is not so relevant if the return is excellent.
Another example of an academic who is so far removed from real world thinks that supplies of commodities are infinite. He should join Bernanke , Geitner and co in the Fed and treasury.
Anthony,
Do you believe New Zealand's dairy farm prices are excessive?
Remember that NZ farm debt increased 277% in the last decade but farm returns only rose 67%.
Could it be a credit fueled bubble?
Also. Have you read the warnings Schiller made about the US housing bubble?
He was dead right on that.
Did you predict the US housing bubble?
cheers
Bernard
Bernard , I am flattered to get a response from your esteemed self.
1) I dont know what NZ farm prices are currently and it is indeed interesting that debt has risen 277% ( thats staggering!) , However I dont think farms are necessarily overvalued or in a bubble . In fact Im sure of it. When you take into account the growth in prices of dairy and agricultural commodities. You are far better qualified than I to know but I think you will find it possible that these prices reflect the very real future increases in Ag commodities to come
As a commentator I deeply respect says "In the future it wont be the 29 year old bankers driving the Maserati’s its absolutely going to be the worlds farmers . The smart bankers will be driving the tractors for the Farmers" :)
I havent read Schillers warnings about the US housing bubble.
But yes I was saying as far back as 2004 that US and NZ housing was terribly overvalued. If I only Id have known how to short them :)
You will even find I am on record as supporting yours and Gareths views on this as far back as when you both 1st started writing columns in the Herald on it.
My argument is the future return on farms will grow significantly. Due to supply demand imbalances in world Ag commodities. That Farm land is productive land as opposed to residential. i.e Apples stock price gone from USD 100 to USD 350 in 20 months due to future earnings potential. Is it overvalued ? Maybe. Is it a bubble ? Definitely not!
Cheers
ps in my excitement to reply I accidently reported you instead of replying to you
Have a good weekend
"Another example of an academic who is so far removed from real world thinks that supplies of commodities are infinite. He should join Bernanke , Geitner and co in the Fed and treasury."
Au contraire.
Schiller seems to be working from fundamentals. It is those still believing "the price of the land is not so relevant if the return is excellent" that haven't done their research (supply and demand in particular).
re #4
I wonder how the deal Charlies got with Cole's will play out!?
"First to fix earthquake damage - ChCh or Japan?" Someone, here, posed that question last week...and picked Japan as the obvious winner. Well so they will be ..! ( mute the sound and scroll down to the picture)
http://www.dailyexpress.co.uk/posts/view/236508/Earthquake-hit-Japanese-road-fixed-in-just-six-days/
...that is awesome! We need these guys in Christhchurch
After the 90 @ 9 being miserable on Thursday, have watched the video in link 10 and it brightened up the day, Brilliant! Thanks Bernard.
what you guys need is some facts. see this clip from the documentary Idiocracy:
http://www.youtube.com/watch?v=PSROlfR7WTo
its all youz need 2 no
Poor IQ 138 - hmm - I'm so lucky IQ 138.5 - I'm still here.
Have a couple of strong coffees and do the test again. You might be able to stretch it to 150 :-P
Trouble is it isn't the lower end that are the banksters, but they might be the ones that end up saving us from them if they revolt.
Yeah but if you ain't breedin like clevon you ain't got a chance in the long run
Foreigners buy Japanese shares, Japanese buy foreign bonds - http://www.reuters.com/article/2011/03/25/us-japan-economy-capflow-idUS…
Shiller misses the point in spades.
Common rural problem.
They're not making any more of it, here are more and more folk, city-domiciled, who want it to feed them, there are already 1-2 billion starving (read:out-bid) and it's all done on the back of a finite oil resource.
Just another flat-earther.
Or just another economist.
Same difference.
Sure, things might get 'cheaper' in absolute $ terms, but compared to incomes?
Not when there's that many bidding at the margin. Not when the aquifers keep being depleted. Not while erosion continues. Not while degredation still progresses.
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