Here's my Top 10 links from around the Internet at 12 pm 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.
I am un chien andalusia!
1. What the Baby Boomers might do - Leith van Onselen at Macrobusiness.com.au has done a nice piece on what the babyboomers might do with their all their assets.
Currently they own most of the assets.
The research shows they are likely to become net sellers after the age of 65.
But who do they sell to?
The proportion of the population who normally buy is getting smaller and is often in more debt (student and credit card debt).
So what happens when you have a large group selling to a small financially strained group?
Asset prices fall.
Here's Leith with an excellent chart below:
According to the ABS data, the Baby Boomers – those born between 1946 and 1965 – hold 45% of owner-occupied dwellings and 51% of other dwellings (i.e. investment properties and holiday homes). This is despite the Boomers representing only around 25% of Australia’s population. Moreover, those aged 65+ hold a further 21% of Australia’s housing wealth, taking the older cohorts’ (those aged over 45) share of Australia’s housing wealth to 67%.
It’s a similar story in relation to Australia’s financial assets: Again, the Baby Boomers (45 to 64 years old) hold 54% of Australia’s financial assets, and those aged 65+ a further 22%, taking the older cohorts’ share (those aged over 45) to 76%.
2. The Shadow is back - The New York Times reports the shadow banking system was a major cause of the global financial crisis. Now it's making a major comeback, thanks to very low interest rates and light regulation.
This can only end badly.
The shadow banking industry is back — and it could become bigger than ever, according to a new report by Standard & Poor’s. As traditional lenders and big investment banks face a wave of new rules stemming from the Dodd-Frank financial overhaul, their lightly-regulated brethren — money market funds, private investment companies and hedge funds — see an opportunity to profit, S.&P. said.
These resurgent shadow-banking firms are aiming to “bolster their balance sheets to take on business that the banks discontinue,” according to the report. While the shadow industry has benefits — like providing cheap financing to companies — it also comes with plenty of risk to investors and the broader economy. “Under certain circumstances, that might destabilize the financial system,” S.&P. warned.
3. Crisis contracts - Here's an interesting idea from Swiss professor Hans Gersbach via VoxEu for 'crisis contracts' for bankers that forces them to repay cash to the bank if their decisions blow up in shareholders' (and governments') faces.
When banks failed, the government paid up. But the bankers responsible kept their bonuses from the years of excess. This column argues for “crisis contracts”. Such contracts require that, in the event of a crisis, bank managers forfeit a portion of their past earnings to rescue the banking system.
Crisis contracts are both a simple and a drastic resource for changing the institutional framework of the financial sector in an economic system. They are unlikely to make all the other measures that have been proposed superfluous, notably the call for a substantial boost in the equity capital base of banks. But crisis contracts do have the potential to become one of the pillars sustaining a new financial system.
4. 'Better get ready' - Bloomberg reports fund manager Mark Mobius has warned another financial crisis is inevitable because the basic causes of the last one haven't been fixed.
Sound familiar? HT Andrewj in today's 90 at 9.
“There is definitely going to be another financial crisis around the corner because we haven’t solved any of the things that caused the previous crisis,” Mobius said at the Foreign Correspondents’ Club of Japan in Tokyo today in response to a question about price swings. “Are the derivatives regulated? No. Are you still getting growth in derivatives? Yes.”
The total value of derivatives in the world exceeds total global gross domestic product by a factor of 10, said Mobius, who oversees more than $50 billion. With that volume of bets in different directions, volatility and equity market crises will occur, he said.
But he sees a silver lining.
“With every crisis comes great opportunity,” said Mobius. When markets are crashing, “that’s when we’re going to be able to invest and do a good job,” he said.
That's fine for those holding cash right now...but not so much for those already invested...
5. 6 days of protest - Ekathimerini reports protestors have now been on the streets in Athens for 6 days straight. It's called the Indignant movement.
In Syntagma Square, the more active members of the movement - which has been organized via social networking sites and without the involvement of labor unions - manned stands dispensing information and food to visitors.
In Thessaloniki, a crowd gathered around the White Tower, the city’s seafront landmark which protesters have marked with a banner reading “Not for sale” - a reference to the government’s plan to sell off state assets.
In a proclamation uploaded onto the Internet, the “Indignant” movement - which takes its name from the original Spanish campaign “Los Indignados” - said that it would keep going until the politicians and technocrats it blames for the current situation “go away.”
6. Suicide of Chinese tycoon - The Economist reports on a interesting suicide case in China and how it hints at some of the financial stresses there as the formal banking sector tightens. HT Nikki via email.
Slowly, word has spread of Jin Libin, a resident of Inner Mongolia who ran a business empire encompassing supermarkets, mining and transport, who set himself on fire one day in April and burned to death. According to the Global Times, a government-run newspaper, he left private debts of $1.3 billion yuan ($191m) of private loans and another 150m yuan of loans from banks.
Still to be reflected is the impact of his collapse on his lenders, which, the Global Times says, included local banks, pawnshops and guaranty companies that had lent him money. No doubt there were also substantial loans from an impersonal network, a form of credit that is commonly used in China, though not legal. The consequences will not be trivial. Many other explosions driven by the same financial forces that brought down Mr Jin are sure to come.
7. This chart tells an amazing story - This chart contrasts growth in US corporate profits with the US trade deficit. How curious.
Could it be corporates are outsourcing operations to boost profits, creating huge movements in capital and the sort of vendor financing that created financial instability?
I'm having some real doubts about the free trading and free capital movement model for multinational shareholder-driven corporatism.
It seems biased in favour of short term thinking, consumerism, never-ending debt and continual financial crisis.
8. WTF! - The NZHerald reports the new Auckland City Super Council plans to spend NZ$576 million on a computer system over the next 10 years. So much for saving money.
Former regional IT head John Holley said no one was being held accountable for the cost blowout, which had been predicted by industry people based on the lack of an IT strategy by the transition agency.
Mr Holley said the $66 million figure to complete the Super City computer system was obviously "bollocks".
Auckland Council chief executive Doug McKay said there was no cost blowout with IT. He said the $450 million figure in the budget was for IT spending over 10 years, whereas the $126 million figure used by Mr Hide was for a day-to-day system developed by the transition agency and implemented over two years.
9. How exposed they are - Australian banks are now heavily exposed to the Australian housing market, both in terms of their lending and their profits. Leith van Onselen has another excellent peice at Macrobusiness.com.au on what's happening inside the Australian banking/housing vortex.
It helps explain the big selloff in their share prices in recent weeks.
This is how the hedge funds are starting to think...
...tick tick tick...
Clearly, Australia’s banks have painted themselves into a corner. If they attempt to belatedly limit their exposure to housing by reducing the availability of mortgage credit, then they risk causing a slump in housing demand and falling prices.
However, if the banks relax lending standards, they may succeed in keeping Australia’s housing bubble inflated for a while longer. But in doing so, they would increase their exposure to future shocks and potentially larger loan losses down the track.
They say the best way to cure a hang over is to keep drinking…
10. Totally a favourite song of mine - Thought I'd throw this in to mix it up. It's a live version of The Pixies peforming Debaser in 2008.
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