Here's my Top 10 links from around the Internet at 4 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.
Walk her every day into a shady place..
1, China's appetite for our baby formula - There's a widespread misperception that the melamine scandal in China was bad news for Fonterra's reputation and therefore New Zealand's in the minds of Chinese food consumers.
If fact, it was a great branding exercise for New Zealand. Fonterra and Helen Clark dobbed in San Lu to the Chinese hierarchy to fix the problem.
Everyone in China understands that any foreign company in a joint venture in China has no control.
That Fonterra and Clark were brave enough to go over their partner's head to the President spoke volumes for how they cared more about consumer health than their own reputations or financial interests. Remember this cost Fonterra a writedown of NZ$139 million on those San Lu assets.
This means that Chinese consumers now associate New Zealand products with safety and integrity.
So now we have all sorts of Chinese importers scrambling to get their hands on New Zealand baby formula imports.
This latest TVNZ story about Kiaora NZ exporting Heitiki branded baby formula is symptomatic of that.
An Auckland-based export company has apologised for the uproar caused after using a Maori name and icons to brand and export its infant formula bound for China.
Kiaora's NZ general manager Sean Xu said they are sorry to have caused cultural offence, which the company did not intend, and they will rebrand their products to remove any Maori references. He said the product would be redesigned "in a way that still promotes its New Zealand manufacture".
Xu said the company had only began selling New Zealand export infant formula in March. He said it met all New Zealand export regulations and was manufactured by a leading New Zealand dairy product manufacturer.
The issue started with cultural concerns expressed by Maori Party co-leader Tariana Turia who initially criticised the use of Maori imagery and words. The logo on the formula's tin is of a Maori woman and the packaging features a picture of a marae in a field surrounded by cows.
2. Duty free baby formula? - And then this NZHerald piece by Michael Dickison from 6 weeks ago about busloads of tourists stopping to buy up bulk amounts of NZ baby formula as they're about to leave the country.
The Herald revealed at the weekend that some supermarkets were selling baby formula worth up to $170,000 in bulk to Chinese exporters while restricting ordinary shoppers to as little as three cans at a time. The formula is sold at a profit to Chinese parents worried about contamination in their locally-made formula, and shortages have deprived many New Zealand mothers.
Shoppers at the Countdown supermarket near Auckland Airport said busloads of visitors would arrive weekly to buy formula. Led by a tour guide, groups of about 40 tourists took their shopping baskets straight to the baby section and "literally stripped the shelves of all baby formula within minutes", said a regular shopper, Steve Marshall.
3. Bubble trouble - The BBC has done a documentary here on the rise in commodity prices globally. HT Darryl.
Michael Robinson asks whether investors and speculators are making prices more volatile and examines the role of the giant traders, banks and companies which now increasingly dominate the world's commodity markets.
Episode One Michael explains some of the surprising effects high commodity prices are having on the ground - a surge of copper theft from railways in the UK, a boom in farm prices in America, and confusion in Europe from a major chocolatier about the price of cocoa - all points to the role of new, speculative money disrupting long-established patterns in the market.
4. Alarmed South African - Bloomberg reports South Africa's Reserve Bank Governor Gill Marcus says Greece's debt crisis is deteriorating at an alarming rate.
“While some form of debt restructuring would seem to be inevitable, and some would say overdue, the impact on the European banking system would be significant,” Marcus told economists in Johannesburg today. Greek, Irish and Portuguese sovereign debt constitutes “a significant proportion” of German and French banks’ balance sheets, she said.
“Failure to contain the systemic problems could have financial stability implications not only for the European economies but for the global economy in general,” Marcus said.
5. A Greek day of reckoning - Argentina's former central bank governor Mario Blejer writes here at Bloomberg that a day of reckoning looms for Greece in the European Ponzi scheme.
He actually used the P word.
This is today's must read.
While there are few similarities between Greece’s present debt situation and Argentina’s in 2002, it is possible to reduce the recent talk of a default to four basic issues and make some predictions.
The nature of the debt problem in peripheral Europe is structural. Since it doesn’t reflect a temporary liquidity squeeze, the approach adopted so far can’t resolve it. The strategy in progress has been to pile new debt upon the existing stock. New loans are used to pay old debt, in addition to financing remaining fiscal gaps. This is why the Ponzi scheme analogy is appropriate. And while the pyramid is growing, the share of peripheral debt held by state-owned institutions also keeps getting bigger. This means that when it all finally collapses, it is the taxpayers of Europe, and the world, that will bear the full cost.
he pyramid may continue to grow for a while, particularly if the cement used is public funds. But it is an unstable construction because European bailouts are becoming politically questionable and because throwing International Monetary Fund money into the Ponzi scheme is raising objections. This strategy is only making the situation worse.
6. 'Let me stay in Ireland' - The Guardian reports a jobless Irish graduate has used 2,000 euros of his life savings to buy a billboard asking for a job.
His ad has struck a chord across Ireland at a time when about 50,000 citizens, many of them young graduates, are expected to leave this year for work abroad. There are still up to 400,000 jobless workers in Ireland due to the property crash and the country's fiscal crisis.
Mac An Iomaire said he came up with the idea after being unemployed for eight months after a year in Australia.
"I had a good bit of money saved when I came home from Australia but I was managing to live on jobseeker's allowance. I gave it a week of hard thinking to come up with the concept and nothing was going to stop me then," he said.
7. Our money printer's corruption - The Sydney Morning Herald reports Securency, the Reserve Bank of Australia's currency printer that also prints our plastic money, paid a middleman to get a money printing contract onto the agenda of a meeting between John Howard and Nigeria's President.
A letter written by a Securency middleman, Benoy Berry, in 2009 details the meeting and accuses Securency of offering ''pay-offs and kickbacks to public functionaries in poor nations'' and resorting to ''less than ethical liaisons with public officials whose appointed fronts you [Securency] now utilise as conduits to distribute inducements''.
Securency wired more than $6 million into Mr Berry's tax haven bank account - a financial arrangement overseen by the RBA appointees on Securency's board and now under investigation by an Australia Federal Police bribery taskforce - in return for his help lobbying senior foreign politicians.Mr Berry's letter highlights how the firm's allegedly longstanding corrupt behaviour continues to tarnish Australia's reputation as an ethical and corruption-free country.
8. What on earth was the NZHerald thinking - An editorial in today's NZHerald writes that the high exchange rate is a cause for celebration.
By who?
Foreign investors?
Voters? Newspaper readers?
Consumers? Harvey Norman?
Don't get me started on this.
A floating exchange rate is like a window to the world. Through it we can see where we are in relation to other economies and how others are seeing us.
Right now, they are regarding us more confidently than we feel.
It reflects an international view of the value of this economy and its likely performance. We should celebrate it. Rich countries do not have low exchange rates. It is doubtful countries become rich on a low rate. They produce products that can trade well in anybody's money. That is the goal.
9. Greek asset stripping exercise - Yves Smith at Naked Capitalism captures the mood in Greece via an emailer's comments. Her piece is well worth a read.
The idea that prevails is that after selling all these crucial resources nothing will really change for the people and most possibly we will be in the same position of bankruptcy after a year or maybe two having lost by this time most of public resources. Also a huge tax collection plan is under finalization which according to leakages it will cost 3,000-4,000 euros annually for a family with 4 persons . This means that a lot of marginally surviving people will fell below the elementary standard of living. Another 150,000 unemployed are expected for the forthcoming year. Final decisions will be announced most probably at 6th of June – so keep this date in mind. It might be the beginning of real bloody demonstrations.
What are the political implications of this mass mobilization and which are the probable effects? Although is difficult to say I am thinking that most probably if this dynamic goes on it might be impossible for the government to vote for the new measures. At this stage political instability with these time lines means bankruptcy.
Another interesting story is that parts of the national capitalist class are seriously thinking of bankrupting the country and take over with a new drachma. This is not discussed politically openly because a return to a national currency will be extremely painful for the masses. In fact the story of Argentina is well known. My impression of the overall situation is that for several reasons Greece follows the road to an open bankruptcy with several people waiting to benefit from that and nobody taking the political risk to support it.
10. Totally Jon Stewart on Dominique Strauss Kahn - 'Everyone knows maids appear in brigades of two. The invisible hand of the market is very touchy, feely.'
11. Totally another Pixies video - Gigantic. I'm a fan. I have a bit of a thing for Kim Deal.
38 Comments
Yes , Mr Hike-it Hickey , what was the Herald thinking ! ..... Obviously they weren't gloomsterising about the future of New Zealand , nor were they advocating a cack-handed attempt to manipulate our currency , to cheat to compete .
...... Those silly feckers at the Herald appear proud to be Kiwis , and proud of the fact that the rest of the financial world has confidence in NZ's economy . Silly critters who laud us because our reserve bank and our government handled the GFC far better than most OECD countries did . We didn't debase and crush our currency into the dust , by printing shit-loads more green confetti ....... oh , the shame of us !
.... how dare the editorial staff at the Herald be so up-beat , optimistic ....... dare I say it ..... " happy " .......
Madness ! Pure madness . They ought to listen to you , big guy , and to your swag bag of gloomy Hickey-mites .......... and get with the programme .
The Herald was thinking...
Delete Header:
"Press Release: New Zealand National Party
31 May 2011
National Announces High Dollar is Now a Good Thing"
Submit Editorial
Its probably the prozac in the coffee...
regards
Good doco on 3, thanks.
"Walk her every day into a shady place".. BH spoken like an economist. Try walking on the sunny side it is much more fun and you allowed to be positive as often as you like.
Brusee
Here's why I like the shady places ;)
cheers
Bernard
Not in my book. Spoken like music lover. (Who perhaps needs to get out a bit more!)
You could try a walk on the wild side and still be on the sunny side of the street. Just make sure you don't get hit by Madam George's trash, it'll blow you away.
In any case you won't be able to recognise an economist even if he hits you on the nose. A diplomat on a horse with a cat would be somewhat more easy.
I've just succumbed and bought tickets for Steely Dan. Not really a fan, but I quite like Anita Moa and Stevie is A HERO!
#8 - The Herald seems to be on a roll:
http://www.johnwalley.co.nz/154-misunderstanding_rd_incentives.aspx
"A recent editorial in the Herald demonstrates a narrow and misinformed view of what research and development really means. See:
http://www.nzherald.co.nz/opinion/news/article.cfm?c_id=466&objectid=10727600
The context specific nature of the endeavour to find or apply new and different things is often overlooked by those only peripherally involved with the activity."
And we wonder why we are where we are..... clueless.
Cheers, Les.
Here's the economist on China
Financial tightening is hitting the Chinese economy with real force http://econ.st/lM0XGm
We need to keep an eye on this
China’s manufacturing expanded at the slowest pace in nine months in May as the government extended a campaign to cool inflation and theproperty market, a survey of companies indicated.
The nation’s fifth interest-rate increase since mid- October may come as early as this weekend, which is extended by a holiday on Monday, the economist added.
Just remember china is supposed to be expanding 10% per year...so every 7 years therefore its GDP DOUBLES......I suspect given all the internal building of empty cities etc that much of that 10% of GDP per annum isnt real GDP and maybe its been that way for 3+ years.....
So how anyone cannot see China as a risk I dont know....Where can China sell to? even with its present sized economy?....
regards
The NYT looks at how Goldman Sachs is hanging Fabulous Fab out to dry and whether he might blab on his old mates.
A former colleague on Goldman’s mortgage desk who now works for another financial firm said he did not understand why Mr. Tourre had been singled out. “That has baffled me from the very beginning. I just can’t even begin to tell you how junior and insignificant his role was,” said this person, who asked not to be named because it could damage his career.
Mr. Tourre’s lawyers also pointed to an e-mail that February from Mr. Egol, which said “the cdo biz is dead we don’t have a lot of time left.” The S.E.C. pointed to that line as evidence that Mr. Tourre had known of the trouble in the market. Mr. Tourre’s lawyers responded that those views were Mr. Egol’s and “not necessarily” Mr. Tourre’s.
http://www.nytimes.com/2011/06/01/business/01prosecute.htm?pagewanted=all
He might as well sing, sensible if he does.....So he then rats on his managers who end up in jail also....they rat on theirs and it flows up and up....and at each stage the mess see's the light of day.....until its at the top....
regards
Vancouver anyone?
A fresh wave of Chinese buyers, coupled with Canada's already frothy home prices, has vaulted Vancouver into the ranks of the world's most unaffordable real-estate markets.
http://online.wsj.com/article/SB10001424052702304563104576357373661248928.html?mod=wsj_share_twitter
cheers
How New Zealand is failing to capitalise on its free trade deal with China, by NZ's most-expert China watcher David Mahon
http://www.mahonchina.com/ChinaNZ/China%20and%20New%20Zealand%20Report.pdf
The fragmented approach to China of the New Zealand private sector and the government’s commercial organs will lead to the same question, ‘Who lost China?’ being asked in Wellington and in the board rooms of New Zealand companies before the end of the decade. In the post war years of stellar economic growth, the loss of China was not an unmitigated commercial disaster for the United States; but, in these lean years of global economic instability, it will be for New Zealand.
The deep political goodwill that New Zealand shares with China risks being damaged as the Chinese observe how New Zealand companies and government agencies have failed to unify and focus their commercial efforts, particularly in sectors such as food and beverage, food safety and agricultural technology. It was partly to gain benefit from these sectors within the New Zealand economy that China signed the free trade agreement.
New Zealand needs to break open the silos within its bureaucracy and create a single commercial entity to tackle the China market. The many small companies that comprise New Zealand’s key sectors need to do the same: end their territorial jealousies and create collaborative commercial vehicles. If NZTE, the Ministries of Economic Development, Tourism, Agriculture, Education, and Immigration, and Investment New Zealand set out to establish separate entities in China, they will never fulfil their potential.
New Zealand taxpayers do not expect to support ministries, government departments and universities to compete with each other offshore as some do.
But that requires public servants doesn't it?, and surely they can never be of any use (according to Bill anyway).
It's better to keep flogging a dead horse and blame everything on the unpopular old public servant, than make the real cuts or make the necessary tax increases that are needed.
Even though our public service is not even big by international standards.
Goldman's links to Libya. Sigh.
http://www.independent.co.uk/news/business/news/how-goldmans-cost-gadda…
Goldman Sachs managed to lose nearly all of the money it had been given to invest by the Libyan government, which eventually led the giant Wall Street bank to offer shares as compensation that would have effectively made Colonel Gaddafi one of its largest single investors.
I can highly recommend GS's investment seminars ..... Aside from the quality of their investment acumen , the food is brilliant . These guys do things in style ....... GS may not be Bernard Hickey's cup of tea , but they sure as hell are Gummy's !
Here's an idea we could adopt here.
U.K. lenders should cap mortgages at 90 percent of the property’s value and no more than three-and-a- half times a household’s annual income to prevent another housing bubble, the Institute for Public Policy Research said.
cheers
Bernard
"If we instead based the level of debt on the income-generating capacity of the property being purchased, rather than on the income of the buyer, then we would forge a link between asset prices and incomes that is currently easily punctured by rising debt. It would still be possible – indeed necessary – to buy a property for more than ten times its annual rental. But then the excess of the price over the loan would be genuinely the savings of the buyer, and an increase in the price of a house would mean a fall in leverage, rather than an increase in leverage as now. There would be a negative feedback loop between house prices and leverage. That hopefully would stop house price bubbles developing in the first place, and take dwellings out of the realm of speculation back into the realm of housing, where they belong."
From Steve Keen here:
Les, did you find any further commentary on this idea? The comments below it all seemed to be related to housing affordability. Safer lending practice....didn't seem to feature.
Nope, but haven't looked. If you do pls share. Cheers, Les.
Idea mooted first here. Only one pertinent comment and the dismissal ...
"As such, the financial modellers would be incentivised to find ways of predicting higher income from the property" No reply from Mr Keen.
Think this all may be too 'long-term' in thinking, there are more pressing problems to tinker and tweak with... namely 'confidence' in the existing system. Ta.
p.s. Kerry McDonald on 9 to Noon - heard the wish list before....
Notable for the blunt statement that most of NZ cannot afford to save...
Thanks for this KWJ. I guess where there is a will there is a way. However, would'nt inflating norms in published data for property returns be harder than same for an individual's personal income?
Nice interview with Kerry McDonald. Shame no one is listening. Have a read of these:
http://www.realeconomy.co.nz/175-kerry_mcdonald_dangerously_in_.aspx
http://www.johnwalley.co.nz/151-slip_sliding_away.aspx
Cheers, Les.
I think Texas has a LVR of 80% and they didnt suffer as a bad housing boom....so I'd suggest a nominal 80% and let the RB vary it depending on what it wanted to do with the market.
3.5 times is stil a huge amount of money...but kiwibank for one is willing to lend at 95% and 4.5 times your wage....! again maybe set 3.5 and let the RB vary it.
How aboat asking RB if allowing the RB to set such a rate(s) would help?
Also a CGT just has to come....too many farmers etc are taking on too much debt to avoid tax, claim WFF and cash out at retirement tax free...its plain crazy....
regards
HUGH P - please confirm Texas's LVR regulation. Like Steven I thought they had a LVR of 80% but Leith over at Macrobusiness in a recent blog debate seemed to think they don't
Please help!!!!
http://www.cnbc.com/id/36134970/The_Lone_Star_Secret
Its also an interesting piece in that it mentions Nevada and Arizona both of which had lax land policies similar to texas and similar to the ones Hugh wants here, except they didnt have the 80% limit and suffered bubbles.
"Texas............. less than 6 percent of them are in or near foreclosure, according to the Mortgage Bankers Association; the national average is nearly 10 percent. Texas might look to outsiders an awful lot like Sunbelt sisters Arizona (13 percent) or Nevada (19)—flat and generous in letting real estate developers sprawl where they will."
So Texas is 50% or even 30% less.....since they all have the same sprawl allowances it cant be that.....on the face of it anyway....
legislation...
http://www.statutes.legis.state.tx.us/Docs/CN/htm/CN.16.htm#16.50
regards
Oh and they also had quite stiff regs and laws on ponzi/preditory selling....
regards
#11. Bernard, some trivia to enrich your fantasies.
Did you know that Kim has a twin sister (Kelley)? They play together in the Breeders.
Glencore
http://www.telegraph.co.uk/finance/commodities/8549157/Glencore-blocked…
Glencore has been barred from borrowing from the European Investment Bank (EIB) after the bank launched an investigation into what it said were "serious concerns" about the way the Swiss commodities trading house is run.
Perhaps something along the lines of 'What's the question?'?
Iain, I wouldn't stop keeping this issue in the public view since I believe from one of Bernard's tweets this morning that readership of interest dot co is actually higher than the NBR. This is a good place to get this message out onto the public radar.
I know that people are disbelieving as it not easy to accept that banks are licesned to create money. But it is important that more people become aware of this.
However I can testify to anyone that reads Iain's posts (having worked in a NZ bank) that money is in fact loaned into existence (created out of thin air). Fiat money is nothing more that an accounting entry on a bank ledger, created at the click of a mouse.
Matt,
Its a matter of public record. The Reserve Bank admits to how it works in their own publicatons, all available on their website. Its incontroversial in banking circles how the modern monetary system works. Its just economic textbooks and public discourse have failed to catch up to modern reality.
When a prominent money reformer was invited to New Zealand by the Banking Reform Committee or somesuch, a representative from the Reserve Bank appeared to debate him. A transcript of the guys speech is available below. They're conscious of how it works and not afraid to talk about, they just don't see anything wrong with it. I'm an anti-capitalist so hardly a defender of the status quo, but as I see it reformers have yet to demonstrate their ability to offer a superior alternative. They don't even truly get how the current system works any more than the right wing political establishment does. They're still convinced the government actually needs to borrow money to spend even if they have an independant soveriegn currency and reserve bank. The government issues money, which is settled by the financial institutions as a mere matter of convention.
“That private banks should create almost all New Zealand’s money supply”
What is Fonterra (and the other Kiwi milk companies) doing to bring 100%, double sealed, packed and processed here, NZ baby formula to the Chinese consumer? The TV report said these "exporters" were selling the Heitiki product for $160/can!
This is just milk powder plus a few additives. If the worried Chinese parent is prepared to fork over that sort of dosh surely this is the marketing opportunity of a lifetime. Is our "free" trade agreement the problem?
Seems crazy we are not shipping it in huge quantities.
regards
"Fonterra: cynically exploiting infants for profit since 2001."
#3 - Wolly, episode 2 is all for you - Cu. It's an audio so no probs with your dial-up. Same goes for you Gummy. No episode 3 yet it seems. Seems like GFC the sequel, in the making.
Bernard, I think the Herald was right - a high exchange rate is an indicator that your economy is doing well. Agreed it isn't necessarily helpful to our economy (although it does help with fuel costs) - but I don't think that was the basis of the article. You don't see crappy countries with high exchange rates.
I know a lot of the moaners on this site will disagree, but our exchange rate is high because we are in a good position compared to a lot of other countries. Australia's is higher because they are in a better position. And without some chinese style currency locking I doubt anyone can change the exchange rate. The reserve bank has tried in the past, and yes they made some money (maybe by good luck), but they didn't really help lower the exchange rate.
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