Here's my Top 10 links from around the Internet at 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.
Please excuse my video #9 where the Cookie Monster pretends to be Tom Waits...or is that vice versa.
1. Finally it's working - WSJ reports with details on the ground how the Chinese government's moves to slow down the housing market seem finally to be working.
That's a good thing and a bad thing.
It's good because a housing bubble can't be good for anyone, particularly China's increasingly grumpy middle classes aspiring for home ownership.
But it's bad because the boom in residential investment in China over the last two years has spurred demand for concrete and steel.
That in turn has boosted prices for iron ore and coal, which in turn helped commodity prices generally, Australia in particular and us indirectly.
That Chinese growth has almost singlehandedly kept growth going in this part of the world.
When it stops we need to keep a close eye on it.
Here's the WSJ:
Business has gotten so bad for Shanghai real-estate agent Zhen Wen he's been forced to turn the lights out in his windowless office to save on electricity.
"We try to keep the lights and air conditioning switched off for as long as possible," says Mr. Zhen, dressed in a thin white cotton shirt on a sweltering summer day. His agency occupies an office in downtown Shanghai that was once a magnet for millionaire speculators, and is now almost deserted.
Cracks started appearing in Shanghai's property market after the government in October limited households to buying one additional home, on top of existing nationwide curbs on bank lending. Out-of-towners need to prove that they have paid social security taxes before they can purchase a home in the city, and if they are already homeowners, they aren't permitted to purchase additional homes.
Property analysts generally expect home prices to fall 5%-10% this year from the previous year in major cities, but say the market will likely avoid a full-scale crash due to the high household savings rate, and a belief that government will intervene to prevent disaster, either by easing restrictions or introducing stimulus measures. Real-estate investment is a crucial component of Chinese economic growth, equivalent to 12% of China's GDP.
2. Hugo Chavez does an FDR - The Guardian reports Venezuelan firebrand Hugo Chavez plans to confiscate Venezuela's gold industry and repatriate gold held offshore.
The moves will make the finances of South America's biggest oil exporter even murkier as the 57-year-old socialist leader gears up for next year's election battle. Chávez, below, has put large parts of Venezuela's economy under state control and is now targeting the gold industry. after his government quarrelled with foreign companies which had complained that limits on how much gold they could export hurt their efforts to secure financing and develop projects.
Chávez seems to have lost patience and decided to put the whole industry into state hands.
3. The problem in Western Australia - Leith van Onselen at Macrobusiness points out BankWest is now offering 97% LVR mortgages to help people buy houses...
Here's Macrobusiness' view on the supply problem:
Restricted land/housing supply is a double-edged sword. With supply unable to respond quickly to changes in demand, the housing market becomes overly sensitive to demand shocks, resulting in greater price volatility and boom/bust cycles as demand rises/falls.
During an upswing, the extra demand will automatically feed into higher home prices rather than new construction. In turn, the price rises and perceived scarcity will encourage speculative demand and ‘panic buying’ from first-time buyers, which helps to drive prices up even further. The opposite holds during a downturn, where unresponsive supply will help to accentuate price falls as new housing planned years ago continues to hit the market.
It’s a shame that our political leaders continue to promote failed policies – such as looser credit and first home buyer subsidies – as the answer to Australia’s housing affordability problems, rather than focusing on the underlying structural factors that are pushing-up the cost of housing and create the pre-conditions for housing bubbles to develop.
4. Austria may be the next domino to fall - Ilya Spivak at DailyFX points out Austria may be the next European nation to fall under the gaze of the bond vigilantes. HT Scarfie.
The danger is in Austrian banks’ exposure to Eastern and Central Europe. As we discussed in July, the region have borrowed aggressively in Swiss Francsto take advantage of Switzerland’s low interest rates. Stratfor – a global intelligence advisory – points out that, “currently, 53 percent of outstanding mortgages in Poland and about 60 percent of those in Hungary are denominated in Francs”.
The majority of those loans were made by the top six Austrian lenders: Bank Austria AG (owned by Italy’s UniCredit SpA), Erste Group Bank AG, Raiffeisen Bank International AG, Oesterreichische Volksbanken AG, BAWAG P.S.K. Bank, and Hypo Alpe-Adria International AG. Austrian borrowers themselves have also dabbled heavily in foreign-currency loans, which now make up almost a third of the country’s household debt, with most denominated in Francs.
5. FDR, Hitler and how they ended the Great Depression - Matt Yglesias writes at Thinkprogress about how The Great Depression was eventually ended.
Hitler, like Roosevelt, undertook what amounted to a two-stage monetary expansion before Europe slipped into total war. FDR’s first move was to devalue the dollar relative to gold. Hitler’s parallel move was devised by the very clever Hjalmar Schacht who (as you can read in hisNuremberg Trials indictment) essentially introduced a parallel currency called “Mefo bills” by setting up a government-backed shell company that issued scrip. FDR’s second move was to have people panic that Hitler was going to conquer them and shift their gold to the USA. Hitler’s second move, by contrast, was to conquer Austria and the modern-day Czech Republic and take their gold.
Then came the actual war, during which period all participating governments adopted what amounts to large-scale central planning of the economy. Centrally planned economies have a lot of problems, but since military supplies are always a case of monopsony purchasing by the government, if military supplies are the only thing you care about, this is what you do. Centrally planned economies have the useful side effect of essentially eliminating unemployment, because you’d have to be an extremely sloppy planner to simply not notice that 9 percent of your labor force isn’t doing anything.
6. Dissatisfied Americans - This Gallup poll shows Americans are less happy than they've been since the pit of the Lehman Crisis in late 2008 as they kicked out George W Bush.
7. The Four Bad Bears - This chart courtesy of Doug Short compares the four big bear markets of the last century.
8. A return to the 1870s? - Simon Johnson blogs at the NYTimes about whether the US economy is sliding back into a new Great Depression.
He doesn't see that, but he does wonder if we're returning to something akin to the very long and deep recessions of the late 1800s.
The relative decline of agriculture and the rise of industry and services over a century ago were long believed to have made the economy more stable, as it moved away from cycles based on the weather and global swings in supply and demand for commodities. But financial development creates its own vulnerability as more people have access to credit for their personal and business decisions. Add to that the rise of a financial sector that has proved brilliant at extracting subsidies that protect against downside risk, and hence encourage excessive risk-taking. The result is an economy that is at least as prone to big boom-bust cycles as what existed at the end of the 19th century.
9. Totally some light relief from the Cookie Monster and Tom Waits singing 'God's Away on Business'. I'm a big Tom Waits fan. And I love, love, love the Cookie Monster. It doesn't get much better than this.
10. Totally Clarke and Dawe - Ed Hightackle talks about Australian Coalition politics. It's funny.
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