Here's my Top 10 links from around the Internet at 10 am in association with NZ Mint.
As always, we welcome your additions in the comments below or via email tobernard.hickey@interest.co.nz.
See all previous Top 10s here.
My must read is #6 from Jeremy Grantham on resource shortages.
1. Not much reform - The new leadership of China's Communist Party has been appointed.
And now the raking of the tea leaves starts to work out what it means.
FT.com says the new team will be very cautious about political and economic reforms.
New Zealand and Australia need China to keep growth going as strong as possible, but also for it to be sustainable.
China has talked for a while now about shifting to a more consumer-led economy, rather than a more investment-led economy.
Richer consumers would buy more protein and go on holiday more often, while more investment would mean more use of iron ore and coal.
We'll see whether China actually delivers on its promise, which would be better for New Zealand than Australia, although Australia is our largest trading partner. That would weaken any benefits. Either way, we're looking at a more subdued China over the next decade than the last.
While that incremental approach served China very well over the past decade, there are growing concerns that bolder steps are now needed to keep the economy in good health.
China is on track for sub-8 per cent growth this year, its weakest in more than a decade. While it is now enjoying a mild rebound, this has come in large part thanks to a boom in investment that many analysts warn is unsustainable.
Chinese officials and economists have long said the country needs to unlock consumption as a bigger driver of growth, but that is easier said than done. It will require difficult reforms, from freeing up the closely controlled financial system to curbing the overwhelming power of state-owned companies.
The new leadership line-up does not appear the one to push through these difficult reforms. The biggest disappointment is the relegation of Wang Qishan, a strong voice for change, to the second lowest-ranked position in the standing committee of the politburo, the seven-person team that forms the core of China’s leadership.
2. Who's who in the new Chinese leadership - Here's a useful guide from Bloomberg.
3. Here comes the money - WSJ reports on a fresh report from McKinsey on wealth in China and how it is shifted around the world.
According to the report, which was based on interviews with 700 high net-worth individuals in 29 Chinese cities, roughly 60% of China’s wealthy have assets overseas. This group keeps only about 10% of their investment funds offshore, the survey found, but more than half said they hoped to increase that percentage over the next five years.
Most surprising, though, were the reasons China’s wealthy choose to invest overseas, which were not unlike their counterparts in the rest of the world. While governments around the globe are raffling off residency perks to attract Chinese money, immigration was cited as a reason for investing overseas by only 23% of respondents. And children’s education was a reason for only 16%.
Instead, diversification of risk was a major reason for 86% of respondents, and 76% cited having access to a wider range of investment products. Under no illusions about the relatively dire state of the global economy, only 15% said they were hoping for a higher return overseas than what’s available in China.
4. The fiscal cliff is not going away - Here's Stan Collender with an analysis of the politics in Washington around the fiscal cliff. There are big problems.
Rhe fundamentals of the fiscal cliff situation haven’t changed that much since before the elections. In spite of outward appearances that an agreement is more likely, there are as many new reasons to conclude that preventing the cliff from going into effect and being the worst fiscal policy since an austerity plan was implemented prematurely at the end of the Great Depression is still more likely to happen after than before it occurs.
Some things about the fiscal cliff were never going to change no matter what happened in the elections.
5. Australia's sneaky money printing - Here's some more from Westpac's Sean Callow on what the Reserve Bank of Australia is doing to quietly intervene to take the top off its currency.
"Overseas institution deposits at the RBA have risen very sharply in recent months from a low of A$0.4 billion as of 25 July to A$2.2 bln as of November 7. We expect to see more of the same story in October with foreign central banks buying Australian dollars direct from the RBA. We still have to call this 'opportunistic intervention' rather than 'intervention'. However, the longer it goes on, the more we start to wonder."
I have yet to meet a climate scientist who does not believe that global warming is a worse problem than they thought a few years ago. The seriousness of this change is not appreciated by politicians and the public. The scientific world carefully measures the speed with which we approach the cliff and will, no doubt, carefully measure our rate of fall. But it is not doing enough to stop it. I am a specialist in investment bubbles, not climate science. But the effects of climate change can only exacerbate the ecological trouble I see reflected in the financial markets — soaring commodity prices and impending shortages.
My firm warned of vastly inflated Japanese equities in 1989 — the grandmother of all bubbles — US growth stocks in 2000 and everything risky in late 2007. The usual mix of investor wishful thinking and dangerous and cynical encouragement from industrial vested interests made these bubbles possible. Prices of global raw materials are now rising fast. This does not constitute a bubble, however, but is a genuine paradigm shift, perhaps the most important economic change since the Industrial Revolution. Simply, we are running out.
He also talks a lot about a looming shortage of phosphate and potash.
Then there is the impending shortage of two fertilizers: phosphorus (phosphate) and potassium (potash). These two elements cannot be made, cannot be substituted, are necessary to grow all life forms, and are mined and depleted. It’s a scary set of statements. Former Soviet states and Canada have more than 70% of the potash. Morocco has 85% of all high-grade phosphates. It is the most important quasi-monopoly in economic history.
What happens when these fertilizers run out is a question I can’t get satisfactorily answered and, believe me, I have tried. There seems to be only one conclusion: their use must be drastically reduced in the next 20–40 years or we will begin to starve.
He essentially was asking why electricity prices were rising when demand was falling. Exactly the same question could be asked here.
IN THE morning, Bruce Robertson and his family were facing a lawsuit from six state electricity giants. By early afternoon, they were fielding an apology.
''I'm still confused,'' Mr Robertson said. ''One minute I've got a lawsuit on my hands, the next minute I've got an apology. What's going on?''
Grid Australia, which represents the nation's $10 billion transmission industry, had threatened to sue the cattle farmer for defamation.
As an outspoken critic of the power companies, Mr Robertson had exposed their inflated forecasts for electricity demand, and the ''gold-plating'', or excessive spending, which was a driving force behind the rise in bills. But after this week's revelations about the lawsuit, an outcry of public support for the New South Wales farmer forced a backdown. The chairman of Grid Australia, Peter McIntyre, wrote to Mr Robertson to "sincerely apologise".
We are about to start another familiar and vicious circle - an overheated Auckland domestic property market, fuelled by unrestrained lending by banks whose sole concern is easy profits, leading to higher interest rates, producing an overvalued exchange rate that prices our production out of international markets and cuts our margins, so we are forced to borrow more from overseas and sell our remaining assets to foreign owners. Little wonder that those fortunate enough to have money to spare see domestic housing as the only sensible investment and making and selling things into international markets as a game for mugs.
The chances of breaking out of this destructive cycle seem slimmer than ever. The new Governor of the Reserve Bank has wasted no time in abjuring the hints of greater flexibility issued by his predecessor and instead has nailed his colours to the mast of an orthodoxy that has been doing its destructive worst for three decades. We see not a scintilla of new thinking from either the Government or the Reserve Bank; surprisingly the only hint of the need for a new approach now comes from the Treasury.
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