Here's my Top 10 links from around the Internet at 1.30pm am in association with NZ Mint.
I'll pop the extras into the comment stream. See all previous Top 10s here.
I welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz.
Are you ready for the Rapture?
1. Financial repression - PIMCO CEO Mohamed El Irian hits the nail on the head in this opinion piece on why economic growth will be slower than many expect for years to come.
If only John Key and Treasury had understood this before forecasting glorious growth forever.
El Irian's view is today's must read in my view.
It captures perfectly the scepticism I have about the muddle-through approach of many governments, including our own.
It's not just a New Zealand thing.
It's why growth in the next 3-5 years will be much slower than many expect.
Balance sheets, both across and within economies, are still out of equilibrium. We expect advanced economies will face sluggish growth and persistently high unemployment over the secular horizon. Emerging economies will achieve higher growth but face recurrent inflationary concerns.
We do not expect policymakers to boldly address structural problems. By targeting negative real interest rates, they will pursue financial repression that undermines the “real return” contract that savers expect.
While the impact on Main Street in America and Europe has repeatedly fallen well short of policymakers’ stated expectations, the unconventional policy actions were consequential for markets. In particular, they suppressed real interest rates, thus pushing investors all over the world out the risk spectrum and contributing to an impressive rally in global equities, emerging market bonds and currencies, and high yield and investment grade corporate bonds.
Yet this policy initiative – to deliver “good” asset price inflation so that people would feel richer and spend more – also delivered “bad” inflation as commodity prices surged, imposing a tax on both input prices and consumers. As a result, policymakers risk being sucked in even deeper into a “portfolio management conversion” – now trying to differentiate between good and bad asset price inflation.
And here's the 'This Time It's Different' chart showing G7 recovery (light purple line) very slow relative to previous recoveries.
And I think El Irian is worth quoting at length here about why it's not all over.
Despite the wrenching global financial crisis, the world has seen little meaningful reduction in the size of the excess liabilities accumulated during the “Great Age” of leverage, debt and credit entitlement. Rather than be addressed in a convincing manner, most of the excess liabilities have simply been shifted around the system, and importantly to public balance sheets and taxpayers.
Sectors vary wildly in the robustness of their balance sheets. Some are strikingly healthy (e.g., multinationals and consumers in emerging economies), having the wallet but not the will to spend; some are healing (e.g., several large banks that have enjoyed the benefits of capital injections, government guarantees and steep yield curves); and others are deteriorating as existing debt is compounded by large deficits (governments in several advanced countries).
Given levels and composition, there is little doubt in our minds that many long-standing contracts will come under pressure over the next three to five years.By targeting negative real interest rates (directly and through regulatory steps), policymakers will pursue financial repression that undermines the “real return” contract that savers expect. A variety of social contracts – e.g., health and pension entitlements, as well as unemployment benefits – are already stressed and face even greater strain. And, at the international level, several implicit contracts will be questioned given the gradual erosion in the standing of the public goods supplied by America (including the dollar the reserve currency).
2. What's wrong with New Zealand - MIT Sloan Management Professor Michael Cusumano tells New Zealand's Ministry of Science and Innovation what's wrong with New Zealand's management culture in this interview. Very interesting thought from a foreigner with some local experience.
What areas do you think New Zealand businesses lack?
Weak management and venture capital (VC) investment. There’s a lot of ambition, but not always the know-how. Almost every company I have met complains about not having enough capital. The fact that many New Zealand businesses don’t necessarily see the world as their market is also limiting.
Do you see a common strategic perspective that limits what NZ companies can achieve?
New Zealand businesses have a tendency to focus on the local market. This is not necessarily bad because every firm needs to start somewhere. But companies from other small countries like Israel or Finland have achieved global success because they quickly come to think of the world as their market.
That’s something New Zealand businesses need to work on if they want global success.
3. Octopussy is an insider trader - BusinessWeek has a detailed piece on the culture of insider trading revealed on Wall St through the trial of Raj Rajaratnam. The growth of hedge funds has fueled a brutal race to the bottom in Wall St's ethics. The industry set up to help insider traders is truly frightening.
The most striking aspect of the case was the sheer volume of obscure financial-world figures with access to potentially lucrative tips—and an inclination to sell them. "The government's recent insider-trading prosecutions have shined a light on both the recent democratization and globalization of what is allegedly inside information," says Adam J. Wasserman, a white-collar criminal attorney at the Dechert law firm in New York. "It's not just in the hands of CEOs and CFOs anymore."
The FBI's investigation started with Roomy Khan, a former Intel (INTC) engineer who gave semiconductor pricing and sales data to Galleon, according to the government. She later worked at the New York-based hedge fund and eventually cooperated with the government as part of a plea bargain. Among those charged is Zvi Goffer, a 34-year-old day trader known among colleagues as "Octopussy." The James Bond-themed nickname alluded to his many sources of tech industry gossip. He has pleaded not guilty and awaits trial later in May.
The Galleon investigation took jurors into the murky world of expert-network firms, a new breed of middlemen that market nonpublic corporate information. For a fee, the firms connect hedge fund traders with talkative corporate workers. (If this sounds like an invitation to monkey business, it is.) Evidence in the Galleon case showed that one such network, Primary Global Research, paid Manosha Karunatilaka, a former U.S. account manager at Taiwan Semiconductor Manufacturing (TSM), $200 per phone call to reveal production reports on the chipmaker's largest customers.
4. A slow decade - BBC reports that UK consumer spending is expected to rise by only 2% a year in the 10 years up to 2020, according to Ernst & Young's Item Club.
Are retailers and economists and governments and central banks aware of this fundamental shift in consumer behaviour? HT Chris via email.
Spending is being weighed down by debt repayments, restricted lending and high inflation, with the prospect of interest rate rises yet to come.
In particular, a decision by the Bank of England to start raising interest rates sooner than expected and a resurgence of commodity price inflation were seen as the biggest threats to the recovery in household incomes and consumer spending.
Households' sensitivity to interest rates was seen as particularly acute, with 69% of mortgages on variable rate, and 43% of them interest-only.
"The squeeze on household budgets is only going to intensify this year, as the gap between high inflation and subdued wage growth continues to widen and we experience a second consecutive year of declining disposable incomes," said Andrew Goodwin, chief economic adviser to the Item Club.
5. Tobin tax for computer trading? - Influential US Democratic Senator Chuck Schumer has proposed a Tobin Tax, often known as the 'Robin Hood tax', on High Frequency Trading thought to have triggered the 'flash crash' last year.
Daniel Indiviglio at The Atlantic looks at this idea, a version of which has been suggested by the Greens and Hone Harawira.
6. It's all about the money printing - This chart shows what happened to trading in commodities after the advent of money printing by the Fed and its Zero Interest Rate Policy (ZIRP). HT Troy via email.
7. Roundup and Genetically Modified Organisms - Apparently a new pathogen has been discovered in genetically engineered US crops that causes livestock infertility.
David Murphy of Food Democracy Now interviews Dr. Don Huber, Professor Emeritus of Plant Pathology, Purdue University on the discovery of new organisms and crop disease, livestock infertility and threats to U.S. food and agriculture. HT Kokila via email
Dr. Huber Explains Science Behind New Organism and Threat from Monsanto's Roundup, GMOs to Disease and Infertility from Food Democracy Now! on Vimeo.
8. China loves gold - Bloomberg reports China's sovereign wealth fund, CITIC, has bought Australian- South African gold miner Gold One for A$444 million
9. The future is asbestos - Jon Stewart has the story.
10. Someone to look after the cats after you have ascended to heaven - May 21 is the day scheduled for The Rapture when the good people who believe ascend to heaven.
But who will look after the cats? Never fear. There is an atheist entrepreneur to help.
Bonus music video - Here's Blondie with Rapture. HT Amanda, who is a fan.
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