Here's my Top 10 links from around the Internet at 8 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.
Up early today rather than late yesterday. Some good backgrounders below on why the Aussie and US economies are struggling.
1. Listings shortage? - Alistair Helm at Realestate.co.nz's Unconditional blog has written in detail about what he and many in the real estate industry say is a listings shortage that is about to cause supply problems and rises in house prices.
Alistair does a great job of showing those regions where listings are down and sales volumes are up.
But is it really the case the market is undersupplied?
It's worth looking at actually how many properties are listed in total in any one month and how many actually sell.
For example, Barfoot and Thompson had 5,067 properties on its books at the end of June, yet sold just 873 properties.
What happened to the rest? Why didn't they sell? Sellers are not moving their prices to meet the market.
I think the real problem for real estate agents is there are not enough sellers willing to cut their prices to meet the market and clear it.
Here's Alistair's view though:
Listing numbers have been falling steadily for over a year, and matched to a slowly rising rate of sales, is beginning to show in the declining stock of homes on the market. This could potentially lead to a demand heavy market which could see price pressure in the medium term.
Looking around the country the regions that are showing growth in sales year-on-year are grouped in the chart below. Eight of the 19 regions show year-on-year growth in sales – the West Coast of the south island topping out with a sales rise of 14%. All regions though show declines in listings.
2. The Eurozone's last stand - Here's Nouriel Roubini on what he says is the Eurozone's last stand.
The eurozone needs policies to restart economic growth on its periphery. Without growth, any austerity and reform will deliver only social unrest and the constant threat of a political backlash, without restoring debt sustainability. To revive growth, the ECB needs to stop raising interest rates and reverse course. The eurozone should also pursue a policy – partially via looser monetary policy – that weakens the value of the euro significantly and restores the periphery’s competitiveness. And Germany should delay its austerity plan, as the last thing that the eurozone needs is a massive fiscal drag.
The eurozone’s current muddle-through approach is an unstable disequilibrium: kicking the can down the road, and throwing good money after bad, will not work. Either the eurozone moves toward a different equilibrium – greater economic, fiscal, and political integration, with policies that restore growth and competitiveness, including orderly debt restructurings and a weaker euro – or it will end up with disorderly defaults, banking crises, and eventually a break-up of the monetary union.
3. Global minimum wage? - Thomas Palley argues here at an FT blog (which means it can be read) there needs to be a global minimum wage system.
The global economy is suffering from severe shortage of demand. In developed economies that shortfall is explicit in high unemployment rates and large output gaps. In emerging market economies it is implicit in their reliance on export-led growth. In part this shortfall reflects the lingering disruptive effects of the financial crisis and Great Recession, but it also reflects globalisation’s undermining of the income generation process. One mechanism that can help rebuild this process is a global minimum wage system. That does not mean imposing US or European minimum wages in developing countries. It does mean establishing a global set of rules for setting country minimum wages.
The minimum wage is a vital policy tool that provides a floor to wages. This floor reduces downward pressure on wages, and it also creates a rebound ripple effect that raises all wages in the bottom two deciles of the wage spectrum. Furthermore, it compresses wages at the bottom of the wage spectrum, thereby helping reduce inequality. Most importantly, an appropriately designed minimum wage can help connect wages and productivity growth, which is critical for building a sustainable demand generation process.
4. 'Another 20% drop in US house prices coming' - US economist Gary Shilling, who was one of the first to predict the sub-prime meltdown, reckons US house prices have another 20% to fall because of an overhang of houses yet to be foreclosed on and stubbornly high unemployment.
RealtyTrac estimates that 1 million foreclosure-related notices that should have been filed by banks this year will be pushed to next year.
With only 18,000 jobs added in June, the country also has a high unemployment rate at 9.2 percent. Also contributing to a decrease in housing demand is an overleveraged consumer base and home prices that have already seen a double-dip decline, according to the Case-Shiller Index, Shilling said.
"In the past, almost everyone was sure that house prices would never fall, and on a national level, they hadn't since the 1930s," Shilling wrote. "Now everyone knows prices can fall, have collapsed and continue to drop. Who wants to buy an asset that is highly likely to continue dropping in price?"
5. But don't just take it from him - PIMCO's Rod Dubitsky also has a couple of reasons why the US housing market just can't get going again.
A basic concept of personal finance is that as long as borrowers have sufficient funds for a down payment and a stable source of income, the next rungs up on the housing ladder should be within reach. For the typical American homeowner, these requirements have traditionally been satisfied by solid employment for young graduates, reasonable pricing and availability of mortgage credit, accumulation of funds that allow trade-up purchases of larger homes and finally by the view of housing wealth as a potential income supplement during retirement.However, we believe the challenging economic situation today has dramatically altered this progression. At the bottom of the ladder, dismal employment prospects and the debt situation of young graduates may be impeding their ability to save for a down payment. In the middle of the spectrum, negative equity is effectively preventing many homeowners from advancing (i.e., Core Logic estimates that over 23% of homeowners have negative equity in their homes preventing them from buying a new home). And at the top of the ladder, the erosion of retirement income could result in downscale housing investments and may push retirees to consign themselves to the status of lifetime renters. Instead of serving as a potential wealth builder, housing has in some cases become a potential millstone that can drain limited remaining liquidity and retirement funds. Hence, even buyers who can climb on to the home ownership ladder may opt out of home ownership in favor of what is often times the more flexible, available rental option.
6. A bear hug - China and America are hugging each other tightly over their trade deficit/surplus and America's ballooning debts.
China can't afford to sell US Treasuries or it would drive down the price of its US Treasuries and the US dollar. America can't afford to stop borrowing or its economy collapses....
China can't afford to stop saving and generate internal consumption because its export sector would slump. It's a type of economic mutally assured destruction.
How is this going to end?
They can't let each other go and start fighting because they would end up killing each other. Do they have time to tip toe to the exits?
Here's the New York Times with an excellent backgrounder on this issue.
It is the ultimate “too big to fail” global relationship, said Andy Rothman, an analyst in Shanghai for the investment bank CLSA.
If Beijing even hinted that it might try to sell part of its American debt, “other countries might sell their dollar assets,” Mr. Rothman said, noting that this would drive down the value of China’s holdings. “It would be financial suicide for China.”
China got into this situation, experts say, by indulging its own economic interests. To bolster what has become the world’s largest export economy, China has focused on policies that encourage domestic savings and hold down the value of its currency. The result: huge trade and current-account surpluses. China has accumulated more than $3 trillion in foreign currency reserves, far more than any other nation.
Most of those reserves are held in dollars, and recycled back to the United States through investments in Treasury bonds and other dollar-denominated securities — even stocks. And while some of China’s foreign exchange reserves are plowed into European and Japanese debt, those bond markets are not big or liquid enough to absorb the bulk of China’s ever-larger foreign holdings.
Beijing has tried to diversify its foreign exchange portfolio by creating a sovereign wealth fund that can invest some of the reserves overseas. The government has also encouraged Chinese companies to expand overseas and to acquire mines and natural resources to fuel China’s hungry economy. But because China has too much foreign money for any other outlet to absorb, the vast majority of its fast-growing reserves continue to be destined for the United States bond market.
“China has no choice but to keep buying,” said Zhang Ming, an expert at the Chinese Academy of Social Sciences, a Beijing research group. “After all, U.S. Treasury bonds are still the largest and most liquid investment product in the world.”
7. Seen The Social Network? - Remember the scene where then Harvard President (and since then Obama economic adviser) Larry Summers hears the Winklevoss twins whingeing about how Mark Zuckerberg stole 'their' idea for facebook?
Here's Summers in Fortune on that episode:
"One of the things you learn as a college president is that if an undergraduate is wearing a tie and jacket on Thursday afternoon at three o'clock, there are two possibilities. One is that they're looking for a job and have an interview; the other is that they are an a**hole. This was the latter case."
8. Life after GPG? - Fairfax's Michael Evans reports Ron Brierley has quietly bought a stake in another company to use it as his vehicle for dealmaking.
In a handwritten substantial shareholders notice, Sir Ron, 74, told the market he had emerged with more than 5 per cent of the listed investment shell India Equities Fund through a private company, Siblow.
Sir Ron paid nearly $294,000 for a 5 per cent stake. It is believed he is looking for a listed vehicle for future endeavours.
9. Australia's cities battening down the hatches - Fairfax's Eli Greenblat has a nice backgrounder on the problems in Australia's domestic economy.
A MIX of cost of living pressures, higher household debt and an overweight exposure to jobs in manufacturing and finance compared with the rest of the country has helped make Melbourne and Sydney the ''epicentres of pain'' for the current weakness in the Australian economy.
A report by Joshua Kirkwood of Merrill Lynch argues that much of the weakness in the retail sector is structural, not cyclical as some within the sector have argued, and that it extends beyond the retail sector to any company exposed to the consumer.
10. Totally a jet pack failure - Luckily for us it's a water powered jet pack rather than our own jet pack.
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