Wednesday's Top 10 with NZ Mint: UK eyes office apartment conversions without council approvals; Japan's 'widowmaker' JGB trade; Currency wars galore; Beggar thy neighbour or thyself?; Dilbert

Wednesday's Top 10 with NZ Mint: UK eyes office apartment conversions without council approvals; Japan's 'widowmaker' JGB trade; Currency wars galore; Beggar thy neighbour or thyself?; Dilbert

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 to bernard.hickey@interest.co.nz.

See all previous Top 10s here.

My must read today is #7 on the exodus of corrupt officials and their money from China to the rest of the world...

1. The Currency Wars of 2013 - Bloomberg reports Bundesbank boss Jens Weidemann has stepped up to criticise the Bank of Japan's latest moves to weaken the yen. It will print unlimited amounts from next year onwards to lift inflation to a new doubled target of around 2%.

The Currency Wars have kicked off the year with a bang.

He's worried about the loss of central bank independence from meddling politicians.

Hard to know why he's so surprised.

The European Central Bank's declaration that it would save the euro 'no matter what' has been a factor in all this currency meddling (except for NZ of course).

I'm also surprised he thinks the world hasn't seen competitive devaluations. Britain, Japan, China, Switzerland and America have all been doing it. Just not New Zealand. Never New Zealand.

“Already, alarming attacks can be seen, for example in Hungary or in Japan, where the new government is interfering massively in the affairs of the central bank, pressuring for a yet more aggressive monetary policy that’s threatening the end of central bank autonomy,” Weidmann, who also sits on the European Central Bank’s Governing Council, said in a speech in Frankfurt last night. “A consequence, whether intended or not, could be the increasing politicization of the exchange rate.”

“Until now, the international monetary system has come through the crisis without rounds of competitive devaluations,” Weidmann said. “I very much hope it stays that way.”

2. Will the ethical funds step up? - Reuters reports on a growing number of 'ethical' funds looking to pull out of companies that pay hardly any tax anywhere. I wonder how the NZ Super Fund deals with this.

FTSE Group, which compiles the share indexes that fund managers in the UK, United States and Asia use to build investment portfolios, said it was looking into excluding companies with what it called overly aggressive tax reduction policies from its ethical index group, FTSE4Good.

The FTSE4Good indexes are one of the benchmarks most commonly used by ethical funds to build their portfolios. European funds invested in socially responsible investments totalled 7 trillion euros (5.8 trillion pounds) at the end of 2011, according to European Sustainable Investment Forum, an ethical investment industry association.

Eleven percent of the $33.3 trillion in assets under professional management in the United States is invested in funds that screen for environmental and ethical factors, according to a 2012 report from the U.S. Forum for Sustainable and Responsible Investment.

3. No council approvals - The FT reports the British government is considering allowing property developers to redevelop empty office buildings into apartments without council approval in a desperate attempt to pump more supply into the market.

Should we do the same here?

The Financial Times has learnt that planning minister Nick Boles will announce a new “permitted development right”, whereby many offices can be turned into residential properties without any permission. The changes will not, however, apply to shops or warehouses.

Ministers believe that with vacancy rates in the office sector running as high as 21 per cent in some regions, there is a case for changing empty office buildings into homes.

The rule change is likely to trigger a wave of conversions in central London, where residential property values have soared during the past five years. In London’s West End, average residential values of £3,000 per sq ft compare to £2,375 for office space.

4. More adult nappies now sold in Japan than child's nappies - Satyajit Das has written an excellently, detailed summary of the Japanese malaise at Naked Capitalism. It's well worth a read. I didn't realise Japan had so many foreign assets left to sell.

Plenty of buffer to fuel the 'widowmaker' trade for a bit longer. It's well worth a read to understand what's going on in the land of the setting sun.

Given its large domestic savings and also the ability of the BoJ to further monetise its debt, the status quo can be maintained for a little longer. But eventually Japan’s deteriorating public finances and declining ability to finance itself domestically will coincide with weakening ratings and large refinancing needs. Japan’s deteriorating public finances and declining ability to finance itself domestically will coincide with weakening ratings and large refinancing needs.

Japan has an average debt maturity of 6 years, shorter than Spain, Italy and France. Around 60% of its debt must be refinanced in the next 5 years. This will expose Japan to the discipline of market investors at a vulnerable moment.

Once the problems emerge, they will be difficult to contain. As Economist Rudiger Dornbush once observed: “The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought”.

5. Beggar thy neighbour or thyself - Mohamed El Irian from PIMCO is always worth a read. Here he is at Project Syndicate with his view on the currency wars.

New Zealand increasingly looks like becoming the last one to play the game.

Not many countries nowadays seek a strong exchange rate; a few, including systemically important ones, are already actively weakening their currencies. Yet, because an exchange rate is a relative price, all currencies cannot weaken simultaneously. How the world resolves this basic inconsistency over the next few years will have a major impact on prospects for growth, employment, income distribution, and the functioning of the global economy.

Many investors also feel the need to balance increasingly speculative investments (“satellite positioning”) with much safer investments (“core positioning”). To meet the latter objective, they turn to prudently managed countries, placing upward pressure on their currencies, too – and, again, beyond what would be warranted by domestic fundamentals.

It is no wonder that more and more governments are worried about exchange-rate appreciation. In addition to short-term policy headaches, stronger currencies carry potentially significant costs in terms of hollowing out industrial and service sectors. So, after a varying mix of tolerance and “heterodox” responses, officials are pulled into loosening their own monetary policy in order to weaken their countries’ currencies or, at a minimum, limit the pace of appreciation.

6. End of China's 1 child policy? - Reuters reports on the potential end of the one child policy in China. One for anyone trying to understand China to watch. A falling working-age population in China must slow their growth at some stage.

The country's labor force, at about 930 million, will start declining in 2025 at a rate of about 10 million a year, projections show. Meanwhile, China's elderly population will hit 360 million by 2030, from about 200 million in 2013.

"If this goes on, there will be no taxpayers, no workers and no caregivers for the elderly," said Gu Baochang, a demography professor at Renmin University.

China's top statistician, Ma Jiantang, said last Friday that the country should look into "an appropriate and scientific family planning policy" after data showed that the country's working-age population, aged 15 to 59, fell for the first time.

7. Property fire sale - The Telegraph's Malcolm Moore has a cracking story from Beijing on how crooked officials are desperately trying to dump all their luxury properties in China and get out before the corruption crackdown launched by new President Xi Jingping gets them. This could have implications for us if proceeds from property sales in China are funneled out and into luxury property in far-away places such as New Zealand....

The numbers referred to in the report about 40% of China's GDP having being smuggled out last year are stunning, if true.

A report by the Communist Party's powerful anti-corruption unit, the Central Commission for Discipline Inspection (CDIC), said "a wave of luxury home sales began last November and has accelerated since December".

It said the volume of deals had intensified by "a hundred times" after Xi Jinping, the incoming Chinese president, warned that corruption could kill the Party and put one of the country's most vigorous and resolute politicians, Wang Qishan, in charge of stamping out graft. The CDIC report, which was obtained by the Economic Observer newspaper, suggested that nearly 10,000 luxury homes had been sold by government officials in Guangzhou and Shanghai alone last year.

It also claimed that an astonishing $1 trillion (£630 billion), equivalent to 40 per cent of Britain's annual GDP, had been smuggled out of China illegally in 2012.

Economists and experts cast doubt on the figure, but said the flow of money from China was dramatic. Li Chengyan, a professor at Peking University, suggested that a total of roughly 10,000 officials had absconded from China with as much as £100 billion.

8. Nominal GDP targets - Bloomberg reports on the full scale debate going on in Britain over the adoption of a nominal GDP target by the Bank of England, rather than just using an inflation target. Yet New Zealand is clinging to the orthodoxy it invented, to the very last, it seems.

“There are certainly aspects of the inflation targeting regime to consider,” King said in Belfast today in his final speech outside London before he retires at the end of June. “The inflation target was introduced almost 21 years ago, and it has now come of age. It would be sensible to review the arrangements for setting monetary policy.”

In a wide-ranging address, King said the BOE is ready to add more stimulus if needed, though monetary policy is not a “panacea” and more must be done to strengthen banks and implement structural reforms. With his successor, Bank of Canada Governor Mark Carney, having raised the topic of the potential limits of inflation targeting, King welcomed that public debate.

9. Tax the multinationals - Auckland University Tax professor Craig Elliffe has written an excellent series for the NZHerald on the issue of multi-national tax avoidance. Well worth a read.

10. Totally Jon Stewart on the inauguration. It's all about the hair, or bangs, as they're called.

(Updated with cartoons)

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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24 Comments

#9 - Tax Avoidance by non-resident corporations - not just multi-nationals.
 
Bernard. A simple solution. From this day forward, all non-resident corporations, seeking to do busines in New Zealand, as part of the approval process, should be required to publish, in the public domain, fully audited results of their New Zealand operations, including how much tax was paid. Daylight. Sunlight. There'ya go. How's'about a crusade piece on that.

Bernard, the NZ$ is on a perpetual slide in value that is roughly 30% to 40% every decade.

Wolly
Happy New Year! You're rich! NZ$ actually 40% higher than it was 20 years ago, this RBNZ chart shows...
http://www.rbnz.govt.nz/keygraphs/Fig8.html
cheers
Bernard

Now let us all know the loss in the value of the dollar here in NZ. Twenty years Bernard. My guess is close to 70%.
Not sure which stat you would wish to use....shall we say the average 40 hour gross wage for an unskilled hammer hand in 1993....and in 2013 in Wgtn....!
Put another way, were those who stashed ten grand cash in their cellar in 93...still able to buy the same amount of booze in 2013...or would they have been better to have stashed away 100 bottles of the best aussie red.

Great thing about taxing the multi's of course is joe PAYE isnt directly impacted so will be for it and NZ based companies will now be on a more level playing field with their overseas owned competitiors, and they actually pay tax.
win, win, win.
queue liberatrian spewing.........
regards
 

Google's Revenue and Earnings Climb; Shares Rise After Hours
Google reported fourth-quarter earnings that beat expectations. The company's shares rose and Dow Futures exploded upwards after the closing bell, in extended-hours trading.

Multinational corporations are not all Googleand Starbucks.  We need to address the issue of the guy who lives in Hong Kong, owns 10 houses in Mt Eden via a Singapore Company, and pays no tax.  And that a NZer who owns similar property does not have that advantage.  We need to fix it.

KH - Easy, cease income tax on resident NZ'ers then we are all on an equal footing,  
Do away with all the compliance BS and cut Government spending back to basics. In fact you could make the Government live off all the assets they have accrued at the tax payers expense and cut GST out as well. 
 
 
 

On the topic of shares:
http://mobile.nzherald.co.nz/business/news/article.php?c_id=3&objectid=10860899
Ex-Agent, hope you've sold your lots of Apple shares...

Nice Chairman, yes I saw this also
Ahh well at least his EBOS shares are going ok....

#3
A thought experiment:
 
Combine the heretical notion behind this proposal (that Local Gumnut wallahs add zero value but at huge cost), with the required action in Godzone to rid ourselves of exactly the same rort (all cost, little benefit) as it applies to Housing Affordability.
 
Then perhaps a little Planning is in fact needed after all.
 
Planning, by Local Gumnut staff, for a post-LG career.
 
Because it isn't hard to see a massive deadweight removal exercise in their futures, eh?

Waymad - haha - love your post.  Now to get the thought experiment into reality......keep repeating it until people start believing it. 

Interest.co.nz - Any chance of a mobile-friendly version of the site in 2013?

YES please - If cost is an issue, just outsource the mobile website development to some IT company in India, China or the Philippine etc..

I may be able to get one of our research/IT students to do as an industry project... depends on your vendor/host...and availability of student....

Wake up SL.   It's been done.  Who do you think are the flyin flyout types buying Auckland Residential Property at prices that just don't matter to them?

On #4 'Hurry up and die, Japan's deputy PM tells old folk' - http://www.smh.com.au/world/hurry-up-and-die-japans-deputy-pm-tells-old-...

#7 - Bernard: where there is smoke there is fire, especially when the smoke doesn't blow away
 
Love your soft-shoe-slipper routine when it comes to this subject - every single one over the last 12 months has been qualified by an IF, BUT, MAYBE
 
This COULD have implications for us IF proceeds from property sales in China are funneled out and into luxury property in far-away places SUCH as New Zealand  .. The numbers referred to in the report about 40% of China's GDP having being smuggled out last year are stunning, IF TRUE
 
Can't recall if you ever divulged the nationality of the buyer of your Epsom property?

ZH's spin may explain why our leaders and their media have little to say.  

Scrap tax for multinationals. My 20M pa multinationa lemployer has paid less tax than my dog over the last 20 years - inflated product cost + spares + support + royalties etc , shifts money to theIr home source for taxation - they have no interest in paying tax in misc banana republics. If tax for these companies was eliminated they would at least have to pay GST on all operating expenses etc. 

#7 - your comment that 40% of China's GDP was smuggled out ISN'T true - read the article and you will note it refers to 40% of Great Britain's GDP! Still a big amount though, IF true.

re #3.
 
Desperate is the word. Despite the repeated denial upthread, these folk are simply not acknowledging that we've hit the ceiling.
 
Even BAU tickover, with no global average GDP growth, and real global negative growth (physical, including maintenance) is consuming 85 mbpd. Thats i billion per ii days. 33 billion barrels a year. Each barrel is the easiest/cheapest left to produce. Each next one is more expensive/harder.
 
And every politician, every vested-interest, every short-term share-holder, every banker - needs to hope it doesn't happen on his/her watch. Short-term acceleration is the goal, devil take the conseqiuences.
 
The joke, of course, is that this is desperation with oil solidly above $100. How far will it take at the margin, to pop the weasel again?
 
Cameron can't have his wish, nor can those who have personal visions skewed by personal circumstances.
 
 

Margin oil, anywhere from $90 to $114
not good...its going to be faster, the drop that is, even Iraq's so called cheap oil seems to be 90 ish. Anything above even $130, not sure it will be developed...
regards
 

Very Nicely put together news blog and also the topic where explained very well to the core. I think the British government move of turning office buildings into residential aparments looks good because those buildings are of waste if only used for offices.
office space Edinburgh

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