Friday's Top 10 with NZ Mint: Bill Gross's Credit Supernova and the attractiveness of NZ land; Australian money burners; Philippine and Korea move to control capital flows; Dilbert

Here's my Top 10 links from around the Internet at 3 pm in association with NZ Mint.

As always, we welcome your additions in the comments below or via email to

See all previous Top 10s here.

My must read today is #1 from Bill Gross. Masterful and mentions New Zealand.

1. Credit Supernova - PIMCO is the world's biggest bond fund and its head manager is Bill Gross.

He always writes an entertaining and insightful monthly newsletter. Readers of the piece will wonder if he's wearing a tinfoil hat. He's not. He's the biggest bond fund manager in the world.

He isn't always right. He bet against an extension in the rally in US Treasuries last year.

Instead, interest rates kept falling as an ageing population of freaked out savers went for the ultimate safety (they believe) of US Treasuries.

But everybody is wondering when the bond markets will have their '1994 moment'.

That was when bond yields blasted higher after a long recession, causing all sorts of grief.

Everyone is waiting and waiting, but it hasn't happened yet.

I think the power of the demographics of ageing populations of savers in the developed economies is much bigger than many people think.

Gross begins with a basic discussion of how the banking system and credit works. A lot of people are thinking about this in the days of money printing and bank bailouts.

The creation of credit in our modern day fractional reserve banking system began with a deposit and the profitable expansion of that deposit via leverage. Banks and other lenders don’t always keep 100% of their deposits in the “vault” at any one time – in fact they keep very little – thus the term “fractional reserves.” That first deposit then, and the explosion outward of 10x and more of levered lending, is modern day finance’s equivalent of the big bang. When it began is actually harder to determine than the birth of the physical universe but it certainly accelerated with the invention of central banking – the U.S. in 1913 – and with it the increased confidence that these newly licensed lenders of last resort would provide support to financial and real economies. Banking and central banks were and remain essential elements of a productive global economy.

But they carried within them an inherent instability that required the perpetual creation of more and more credit to stay alive. Those initial loans from that first deposit? They were made most certainly at yields close to the rate of real growth and creation of real wealth in the economy. Lenders demanded that yield because of their risk, and borrowers were speculating that the profit on their fledgling enterprises would exceed the interest expense on those loans. In many cases, they succeeded. But the economy as a whole could not logically grow faster than the real interest rates required to pay creditors, in combination with the near double-digit returns that equity holders demanded to support the initial leverage – unless – unless – it was supplied with additional credit to pay the tab. In a sense this was a “Sixteen Tons” metaphor: Another day older and deeper in debt, except few within the credit system itself understood the implications.

When Minsky formulated his theory in the early 70s, credit outstanding in the U.S. totaled $3 trillion.† Today, at $56 trillion and counting, it is a monster that requires perpetually increasing amounts of fuel, a supernova star that expands and expands, yet, in the process begins to consume itself. Each additional dollar of credit seems to create less and less heat. In the 1980s, it took four dollars of new credit to generate $1 of real GDP. Over the last decade, it has taken $10, and since 2006, $20 to produce the same result. Minsky’s Ponzi finance at the 2013 stage goes more and more to creditors and market speculators and less and less to the real economy. This “Credit New Normal” is entropic much like the physical universe and the “heat” or real growth that new credit now generates becomes less and less each year: 2% real growth now instead of an historical 3.5% over the past 50 years; likely even less as the future unfolds.


So our credit-based financial markets and the economy it supports are levered, fragile and increasingly entropic – it is running out of energy and time. When does money run out of time? The countdown begins when investable assets pose too much risk for too little return; when lenders desert credit markets for other alternatives such as cash or real assets.

The element of time is critical because investors and speculators that support the system may not necessarily fully participate in it for perpetuity. We ask ourselves frequently at PIMCO, what else could we do, what else could we invest in to avoid the consequences of financial repression and negative real interest rates approaching minus 2%? The choices are varied: cash to help protect against an inflationary expansion or just the opposite – long Treasuries to take advantage of a deflationary bust; real assets; emerging market equities, etc. One of our Investment Committee members swears he would buy land in New Zealand and set sail. Most of us can’t do that, nor can you.

2 Big pressure on China's steel mills - The FT's Leslie Hook and Simon Rabinovitch report from Beijing on the demands from local governments in China for Chinese steel mills to pay their taxes two years in advance.

This can't be good news for the Australian coal miners and iron ore miners that supply these mills.

Chinese mills, which produce nearly half the world’s steel, have traditionally been cash cows for local governments. But last year, as China’s economy slowed, profits at the country’s biggest steel mills dropped 98 per cent from the previous year, according to the China Iron and Steel Association (CISA). Losses reported by unprofitable mills increased more than sevenfold.

Yet that did not stop municipalities in northern and northeastern China – also feeling the pinch from the economic downturn – from pressuring some mills to pay tax up to two years ahead of time, according to Zhang Changfu, CISA secretary-general. Uncooperative companies have found themselves subject to audits, investigations, and often big fines.

3. There is another way - New Zealand is determined to leave its borders completely open to international investment flows, but others such as the Philippines and Korea are acting to staunch the flows that are pushing up their currencies and slamming their export sectors.

Here we still believe everyone else is playing fair and the magic of the market will cure all.

Bloomberg reports on the latest moves in the Philippines and Korea:

Philippine central bank Governor Amando Tetangco said he’s studying more measures to counter excessive capital inflows lured by growth, joining South Korea and Singapore in warning that policy makers need to consider more steps to reduce the impact of such funds.

“Capital flows and the impact of these on the local economy and local financial markets” would be among the biggest challenges this year, Tetangco said in an interview in his office yesterday. “We continue to study what other measures can be implemented just in case there’s a need to adopt more measures in the future.”

Monetary easing in developed nations from Japan to the U.S. and Europe has spurred flows to faster growing emerging markets as investors seek higher returns, boosting Asian stocks to the highest in 17 months this week.

4. Oh dear - ABC reports on a Reserve Bank of Australia employee in the 'damaged notes division' who seemed to be depositing more than he was earning...

A police summary tendered in Melbourne Magistrates Court stated Jackson deposited $1.1 million into his bank account between September 2009 and May 2012, but only earned $252 ,000 over the same period.

His former colleague, Leanne Jeil, told the court she became suspicious about Jackson's behaviour after she found packages containing more than 2,000 contaminated bank notes in a disused office where the furnace used to destroy the notes is housed.

5. Don't let class warfare turn into generational warfare - So says Bloomberg here:

Whether you call it "class warfare" or not, income and wealth were dividing lines in the 2012 election.

President Barack Obama campaigned to raise taxes on the top 2 percent of earners. Mitt Romney called the 47 percent of Americans who didn't pay federal income taxes in 2009  "entitled" and "dependent upon government." And income was a strong predictor of voting preferences, too, with richer voters casting ballots for Romney and poorer ones for Obama.

A new division may emerge in future, based not on income but on age.

The coming generation of retirees hasn't paid nearly enough in taxes to cover the costs of the pensions and medical care it has promised itself. The generation of Americans between ages 60 and 65 in 2010, for instance, has underpaid by some $292 billion, according to the International Monetary Fund.

That means young Americans -- and those yet to be born -- will face an ugly decision. Either they can cover their parents' and grandparents' bills by raising their own taxes, or they can cut their elderly relatives' benefits.

6. The problem with New Zealand's mortgage debt - Leith van Onselen does a nice job over at Macrobusiness on this, with some great charts included.

7. We're one of the world's 'sexiest currencies' (hope that gets through your email filters) - So says Societe Generale's Kit Juckes in this BusinessInsider piece.

High interest rates, a strong trade balance, and strong growth are what typically make a currency attractive to traders.

On this chart, you can see that the currencies that are far to the right on the sexy index include the Norwegian Krone, the Aussie Dollar, the Kiwi (New Zealand), the Swiss Franc, the the Swedish Krona:

The chart compares how 'expensive' it is on a parity purchase power basis versus it's actual cost.

8. Goldman slightly less Fabulous - Fabulous Fabrice Tourre has now quietly been unemployed by Goldman Sachs, Dealbreaker reports. He's gone to study Economics at the University of Chicago.

In an email to a friend that was disclosed by the SEC, Mr. Tourre wrote: “The whole building is about to collapse anytime now … Only potential survivor, the fabulous Fab[rice Tourre] … standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstruosities!!!”

9. The saddest chart in the world - Youth unemployment in Europe courtesy of Zerohedge.

10. Totally Jon Stewart on the US immigration debate.

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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Good that NZ keeps their interest rates high for the benefit of currency traders.
Maybe the RBNZ is not really independant from the IMF, Fed, global corporates/merchant banks.

Maybe interest rates wouldn't be so "high" if property speculators weren't so keen on increasing leverage.

NZ's high interest rates have absolutely nothing to do with property.
NZ has been given a certain position in the global order -  we are to provide high returns for traders etc to park their funds in overnight. And other non-property reasons.
Property speculators would not make a cent if it were not for demand - from all quarters.

However it is most likely that the NZD is higher because of the real inflow of cash (hot cash?) to buy into Auckland residential (and some commercial and retail) property.
Stop the inflow. They are having to change their yuan, dollars, rupees, euros even into our dollars to buy that house, flat, shop block.
Anybody disagree?

If you assemble a list of countries that have NOT restricted purchases of domestic property by off-shore non-residents in the south pacific and near-east you have a very short list. Un-surprisingly that's where the money is heading. They're getting in before the window closes.
Meanwhile, NZ still hasn't got an anti-money-laundering scheme in operation, YET
Even though the NZD has gone up against the yuan-remimbi by 100% over the past two years, the hot-money-cowboys don't seem to care. They're still buying the NZD with their ears pinned back. That's telling you it's cheaper than washing it through the usual back-door-launderers.

If all this apparent non-resident house buying is a reality and it continues - thus pushing prices up further .. am I right in thinking the likely response by the RB Gov will be to push the OCR (and hence local retail interest rates) up to cool it off - but of course the anecdotal evidence suggests it's not locals heating it up in the first place? 
So, then we'll end up with our still inflated house prices and even higher interest rates on local borrowers - and perhaps also higher LVR required.  And I'd be willing to bet - the banks pass on the full OCR increase wrt lending but not wrt deposits.
One really wonders what the real plan is?

The new RBNZ Governor has 15 years recent experience with the World Bank. He will be trained to be loyal to globalism, the World Bank objectives, the IMF viewpoint, & by proxy to the EU designs etc.  The interests of NZ small businesses, farmers & consumers will be way down the list of priorities.
If he manages to crash the NZ economy domestically that may well be the outcome of his global objectives.  He ties in nicely with JK's globalism perspective and experience.  The loyalty to NZ is far lower than the loyalty to a Global World Order.  
NZ citizens are mere spectactors in a controlled programme.
He will keep the people busy with distracting ideas such as an overheating housing market etc ...
"Annette Beacher, head of Asia-Pacific research for TD Securities, said the fact that Mr. Wheeler had lived outside New Zealand since 1997, taking on global roles, could be “somewhat problematic.”“There may be a risk that there is not enough local knowledge of how the New Zealand economy actually functions, in terms of consumer behavior, appetite for debt and the dynamic between the exchange rate and exports,” she said.

Hmm - that's an interesting thesis.
Sure you're seen me link it before - but it all just so fits in with this theory on the dominant ideology we are all "being raised" on;

Kate: No one even acknowledges there is a problem. Not sure there is an easy solution. OCR and OBR and LVR levers will not address these problems. Each of those levers will simply hurt the locals. Won't affect the cashed-up cowboys in the slightest. The RBNZ is snookered.
One wonders what the real plan is?
There is no plan. The political elite are doing an "Admiral Horatio Lord Nelson" holding the telescope up to their blind eye, "I see nothing", hoping Mr Market will sort it all out for them. The inscrutables are too smart. Doesn't matter what restrictions are imposed, they will be avoided. Yesterday Waymad posted an elegant but simple example of the exploitable loopholes that are available. Register multiple NZ based companies online via the leaking companies registry system from off-shore. Employ locals. Buy property in the names of the NZ registered companies. Target welfare beneficiaries looking for pocket money. It's like the holes in the dykes in Holland and not having enough fingers to plug them. What he was alluding to was this:- Have you ever seen one of those scam emails advertising for motivated locals. Earn $1000 per week. Work from home. Must be a resident with citizenship credentials. Must have a computer. Must be computer literate. Must have a local bank account. You can work the rest out yourself.

Can't say I've rec'd any such email but am sure one could counter-scam them out of their money and then turn over all their contact details.  It would seem to me if that type of scam waymad describes is operating that some investigative journalist or other such concerned citizen would have blown the whistle by now? 

Have a look at
Australia is making it easier for rich people to get into Australia.  Just invest a lazy 5 Million AUD and you can be in.

I think the number is only 2 mil NZD here.

Is it that high?  I would have thought the real estate agents and politicians would have got together and made it more like 500K
Got to have some dosh left to prop the property market up.

LOL....."The cost of Bethlehem College hiring a PR consultant and private investigator in the aftermath of the Kenyan tragedy will be partly met by taxpayers.
The college's board of trustees chairman Greg Hollister-Jones confirmed to the Bay of Plenty Times the board's usual funding, including money from the Education Ministry, would be used for both professionals"...Herald

While everyone is talking about the 3-D printing industrial revolution, Protomold is helping tinkerers become tycoons by making mass-production injection molding technology accessible for easily customized short-run batches — and their recent expansion of materials lets designers produce almost anything they need.

They've just added new materials to their list, including injection molded steel, stainless steel, magnesium, copper. Their newest is the option to mold parts in high temperature, medical grade resins, giving garage entrepreneurs the ability to produce parts for medical devices and high performance applications. Protomold is focused on helping turn big ideas into big companies.

There is a desperate attempt to get people fighting each other on anything other than income inequality.
Let's not get sucked in. United we stand on income inequality

Is a very good article however people have been writting about this for years so nothing new. Still, no harm in constantly reminding ourselves.

#1.  It's funny Bill Gross picks NZ land to comment about in his article.  I wonder if he actually understands how easy it is to buy here?  If we do get yet more foreigners snapping up our precious land, wouldn't it make sense to clip the ticket on those transactions to help cool our property market and at the same time help pay for our kids to get a better education or help pay our pensioners pensions or something similar?
Or am I far too radical?  Is it a better idea to just increase taxes on high income earners to pay for a better life for NZers? Wake up NZ!

You can certainly buy, but then earn $s?  i woud assume if you dump millions in the NZ Govn coffers you will be welcomed....just what that impact is of useless ppl coming in on NZers is another matter.

an interesting article on Tax minimisation  facilitators
The best bits are where they keep blaming the OECD, passing the buck to an entity that cannot levy taxes at all. A bit like blaming Rotary or Lions

As bob has written , many single people want smaller housing options , they don't want some bureaucrat arbitrarily deciding upon their minimum living space  .......
......perhaps 11 sq. metre garages  are a tadge pokey , too extreme in the other direction , but something in the 25 to 50 sq. metre range may be cheap and comfy ....
Give them their due , the Brits are looking for workable solutions .....

US petrol prices at highest ever level for this time of year:
Must be down to all that shale (tight) oil the US has been producing. At the rate they are going by the time they have achieved the previously hyped 'energy independence' they will be paying $6/gallon.......(and maybe just as well the UK, Japan and Eurozone are in recession or who knows how high this energy independence thang would be forcing their petrol prices).

The ex-head of shell(?) formed a group to lobby for "americans for cheap petrol" (or something like that)  he mentioned some interesting facts, decline rates for crude is 4 to 7mbpd per annum (I'd love to know where he got that data from)....anyway he was predicting $7 as quite possible in the shorter term....even $8. Now the Europeans can work with $8, americans? they seem to be buggered at $4.
The hype I think is wearng thin on energy independance and there is no AGW or warming...americans saw a whole bunch of records broken last year...and the dark ice impact on Greenland is faster than expected...

Dow Jones index closes above 14 000 ........... OMG , Bernard ........ the world didn't end !
..... the goss is , that economically speaking , things are improving ......
There is no " double dip " recession ......
..... what've you got to moan about on Monday ? ....... there isn't much left to gloomsterise about ..... It's depressing , isn't it ! ......
Cheer up , have a Gummibar !

What else can one expect when the Fed is force feeding the market with liquidity?
Who would be silly enough to fight the Fed, other than our local NZD bears?

Bill Gross is fighting the Fed ! ....... and losing ...... are we surprised by that ?

What he says and does are not the same.

Hey Gummy. Happy 2013! Yes, things are looking up. You're playing in the wrong sand box mate. :)

Hello Amanda ! ...... yes , you're right , the kiddies in the Top 10 sandbox have become irreversibly gloomsterised by the dark lord of depression , Bernard .....
.... I shall come and have a little play in your box , as you entreat ....
Hmmmm ...... might wanna edit that , Gummy , before you join Ivan in the time out zone .....

Hi Gummy. Dark Lord here. Which of these quotes should I use to respond.


"I find your lack of faith disturbing."

"You don't know the power of the dark side!"

"Luke, I am your father!."

"Today will be a day long remembered. It has seen the death of Kenobi, and soon the fall of the rebellion."

"The force is strong with this one."

"I sense something, a presence I've not felt since......."

"You should not have come back!"

"The ability to destroy a planet is insignificant next to the power of the force."

"Just for once, let me look at your face with my own eyes."

"I've been waiting for you, Obi-wan. We meet again at last. The circle is now complete. When I left you I was but the learner. Now I am the master."

"Perhaps I can find new ways to motivate them."

"Obi-Wan has taught you well."

" Obi-Wan once thought as you do. You don't know the power of the Dark Side, I must obey my master."

"It is too late for me, son. The Emperor will show you the true nature of the Force. He is your master now."

"You are unwise to lower your defenses!"

" As you wish."

"No. Leave them to me. I will deal with them myself."

"You cannot hide forever, Luke."

"Don't fail me again, Admiral."

"Asteroids do not concern me, Admiral. I want that ship, not excuses."

"He will join us or die, my master."

"Alert all commands. Calculate every possible destination along their last 

known trajectory."

"Impressive. Most impressive. Obi-Wan has taught you well. You have controlled your fear. Now, release your anger. Only your hatred can destroy me."

"The force is with you, young Skywalker, but you are not a Jedi yet."

"What is thy bidding, my master?"

"When I left you I was but the learner. Now I am the master."



I quite like the one about he/she is your master now.


My favourite scene is where the dark lord meets the hero , Lone Starr .....
" So , Lone Starr , Yoghurt has taught you well . If there's one thing I despise , it is a fair fight . But if I must , then I must . May the best man win . Put 'er there ... "
  ( as Lone Starr reaches out his hand , the Dark Helmet snatches his Schwartz ring )
......."  The Ring ! ...  I can't believe you fell for the oldest trick in the book . What a goof ! What's with you , man ? Come on . You know what ? Here , let me give it back to you " .....
( as Lone Starr reaches for the Ring , Dark Helmet drops it down the grate )
..... " Oh look , you fell for that too ! I can't believe it , man ! "

Who was first to pick the DOW hitting 14K?
Look at my post on 6 Nov last year
by Mike B | 06 Nov 12, 4:52pm

My gut feeling tells me
There will be NO Grexit
The DOW will hit 14K next year (2013)
Just my gut feeling
What gave me this gut feeling was the question i keep asking myself
"Where are all those billions of supper fund dollars, being pilled up week after week year after year going to go and the only answer was the DOW"
Also, i said to myself "what makes absolutly no sense but will happen anyway?" and the answer was the DOW to hit 14k

Don't let John Key see this
'No sell-off' for public forests

The government has announced that it will not sell off publicly owned forests in England.

3D printed moon building designs revealed

Architects Fosters and Partners have revealed designs for a building on the Moon that could be constructed from material already on its surface.

An inflatable structure would be transported from Earth, then covered with a shell built by 3D printers.

This one is for Shearer, Norman et fact it's for anyone who believes in voodoo economics...

Hahaharhahaha.....we now know BS can differ in quality.....
"The IMF Executive Board found that Argentina's efforts to meet its demands for better GDP and inflation data have "not been sufficient. As a result, the Fund has issued a declaration of censure against Argentina......................The Fund stands ready to continue its dialogue with the Argentine authorities to improve the quality" of the official data, the board said in a statement."

""I have never received nor distributed undeclared money," he said, stressing that he would not resign."
The kickbacks in Spain fall mainly into Swiss bank accounts...haha

Nannycrats know best how to waste other peoples munny
"Spending on "qualitative media analysis" is to be increased by £1.7 million and while most of the money is to be found in existing budgets an additional £787,000 will be need to be raised next year despite calls for EU spending to reflect national austerity."