Monday's Top 10 with NZ Mint: Dodgy market signals?; Christchurch consents; ignoring history's lessons; listings shortgage; Generation Squeeze; steel industry trouble; Dilbert, and more

Here's my Top 10 links from around the Internet at 10:00 am today in association with NZ Mint.

Bernard is back tomorrow with his version.

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

See all previous Top 10s here.


1. Making sense of market signals
What's going on? The data doesn't give great cause for optimism, and yet equity markets are approaching record highs.

Are observers only looking at selected data that 'proves' their own prejudice?

Anatole Kaletsky at Reuters thinks the current market optimism is likely to be justified, at least in the short term. He gives three reasons why, but also warns 'what could go wrong'.

The US economy has just suffered its first contraction since 2009, consumer confidence has plunged since November’s election and Americans’ paychecks are only just starting to reflect an increase in payroll taxes averaging $70 per month. Across the Atlantic, the euro zone and Britain seem to be sinking back into recession. And conditions in Japan have become so desperate that newly elected prime minister Shinzo Abe is openly devaluing the currency and threatening to take direct control of the central bank.

At the same time, stock markets around the world are approaching or exceeding records.

Money is flowing into equity mutual funds at the fastest rate since the end of the last bull market in 2000. And business sentiment, as reported from Davos, seems to be more optimistic than at any time since the global financial crisis of 2008. Is there a rational way to explain these contradictions? Will the business and market optimism be sustainable? Or is this sudden euphoria just another financial bubble, sure to be punctured if the grim message from recent economic indicators sinks in?

The likely answer to all these questions is yes.

Meanwhile, Gary Shilling at Bloomberg shows how markets could quickly shift to 'risk-off'.

The huge deleveraging in private sectors in the U.S. and elsewhere, the unresolved frictions between northern and southern nations in the euro area and the needed shift in China to a domestically driven economy suggest that the current “risk-on” investment environment may collapse.

Bullish investors will probably be forced into an agonizing reappraisal by a shock, as was the case in limited ways with the euphoria over the Federal Reserve’s first two rounds of quantitative easing and its Operation Twist, which involved swapping short-term debt for long-term securities.

2. 'Rapid response?
The building consent data for December was released last Friday and the Christchurch data for new residential consents made interesting reading. They were up, but still pretty anemic in the City itself, as this chart shows. It is the outlying districts that are really getting into gear. What's holding Christchurch City back we wondered? They definitely need the housing - more than 10,000 houses required demolition, and over 100,000 houses were damaged.

Then we dug deeper into the data and the consents for alterations show a different picture, although with 100,000+ houses damaged there is a very long way to go yet: (HT Brendon)

3. Those who ignore history ...
Industrial market economies have been suffering from periodic financial crises, followed by high unemployment, at least since the Panic of 1825, so we have had nearly two centuries since then to figure out how to deal with them. Why, then, have governments and central banks failed this time around?

J. Bradford DeLong is Professor of Economics at the University of California at Berkeley and a research associate at the National Bureau for Economic Research, and he can't work out why we don't apply the lessons from the past, and avoid the mistakes of the past. More at Project Sydnicate:

Over the following century [from 1829], economists like John Stuart Mill, Walter Bagehot, Irving Fisher, Knut Wicksell, and John Maynard Keynes devised a list of steps to take in order to avoid or cure a depression.

1. Don’t go there in the first place: avoid whatever it is – whether external pressure under the gold standard, asset-price bubbles, or leverage-and-panic cycles such as that of 2003-2009 – that creates the desire to deleverage.

2. If you do find yourself there, stop the desire to deleverage by having the central bank buy bonds for cash, thereby pushing down interest rates, so that holding debt becomes more attractive than holding cash.

3. If you still find yourself there, stop the desire to deleverage by having the Treasury guarantee risky assets, or issue safe ones, in order to raise the quality of debt in the market; this, too, will make holding debt more attractive.

4. If that fails, stop the desire to deleverage by promising to print more money in the future, which would raise the rate of inflation and make holding cash less attractive than spending it.

5. In the worst case, have the government step in, borrow money, and buy stuff, thereby rebalancing the economy as the private sector deleverages.

4. Today's raw market data ...
A quick new week update:

as at 11:10am Today
9:00 am
Friday Four
weeks ago
year ago
NZ$1 = US$ 0.8446 0.8392 0.8316 0.8336
NZ$1 = AU$ 0.8124 0.8052 0.7940 0.7780
TWI 76.10 75.47 74.99 73.05
Gold, US$/oz 1,669 1,665 1,648 1,734
Dow 14,010 13,907 13,414 12,836
Copper, US$/tonne 8,160 8,170 8,026 8,320
Volatility Index 12.89 14.28 13.83 17.10

5. A real market shortgage
Auckland is a big city, but no where near as big as Beijing. (China has 160 cities with a population of over 1 million, and 63 over 1.5 million.) According to Barfoot & Tompson, they averaged 1,145 new listing in each month of 2012. However, in Beijing, apparently there were only 1,114 'homes' (= high-rise apartments) were put on the market in the first four weeks of January 2013. Big demand, lack of supply = prices rose.

We'll get the listing data from Barfoots in a few days - and they are only one Auckland agency accounting for about 40% of the Auckland market - but there is a good chance more homes were listed here than in the Chinese capital. Amazing. Perhaps another reason those folks are looking elsewhere. Here's the story from Caixin:

Some 11,156 homes were sold in the capital from the beginning of the year to January 28, a 570 percent increase compared to the same period in 2012, a property agency says. Nearly 400 units were sold on average every day from January 22 to 28, HomeLink said, despite the fact that the beginning of the year was usually slow. The average housing price was 23,259 yuan per square meter on January 28. In December, the latter figure was 20,627 yuan, data from the Beijing Real Estate Association shows.

However, supply could become a problem. Only 1,114 units were put on the market from January 1 to 27, HomeLink data shows.


6. Hard? You think you've got it hard! In my day ...
The New York Times has a very sobering look at 'Generation Squeeze'. It's not pretty. We should be very thankful it is not a trend here - yet. We should also be wary of its arrival.

Young graduates are in debt, out of work and on their parents’ couches. People in their 30s and 40s can’t afford to buy homes or have children. Retirees are earning near-zero interest on their savings.

In the current listless economy, every generation has a claim to having been most injured.

But the Labor Department’s latest jobs snapshot and other recent data reports present a strong case for crowning baby boomers as the greatest victims of the recession and its grim aftermath.

These Americans in their 50s and early 60s - those near retirement age who do not yet have access to Medicare and Social Security - have lost the most earnings power of any age group, with their household incomes 10 percent below what they made when the recovery began three years ago, according to Sentier Research, a data analysis company. Their retirement savings and home values fell sharply at the worst possible time: just before they needed to cash out.

They are supporting both aged parents and unemployed young-adult children, earning them the inauspicious nickname “Generation Squeeze.”

7. China's steel industry is in trouble
This key industry saw sales drop 4% and profits crash 98%, according to a Chinese online source Xinhua. Talk about irrational exuberance. Watch out Australia.

"The steel industry experienced its greatest difficulties since the beginning of the century," the association said. High prices for imported iron ore also eroded steel companies' profitability last year. "Although steel prices remained at a low level in 2012, prices for iron ore imports tended to climb as soon as steel prices saw even a slight rise, and at a much greater margin," the association said.

Last October, the association's steel price index inched up just 2.9 percent month on month, while order prices for imported iron ore surged 15.9 percent from their lowest level in September, it said. The difficulty and high cost of obtaining loans, burdens created by taxes and fees and a lack of self-discipline in the sector have added to the sector's current troubles.

8. A solution to yesterday's problems
Traditonal black London taxi cabs are "not worth the money" claims one driver, and the company that makes them is broke. It's just been bailed out by the Chinese car maker Geely. If you are like me and (after a number of rides)  wondered why people seem so attached to them, you are not alone. Even their drivers don't expect them to survive. Here's the story from DealBook:

The car’s design has not changed much over the last 65 years, still bearing the same round shape. With seats to fit five passengers, it is more spacious than most passenger cars. The black cab is still the only taxi that can be hailed in the streets of London. Rival cabs must be hired by phone or through their offices.

9. In defense of [proper] economics
Here's something from the 2010 archives, something worth a re-read. It's by Genn Boyle, a professor at the Dept. of Economics and Finance at Canterbiury University. It's a good read. He ends it with ...

I have seen the enemy, and he is us

Ultimately, economists must take a large share of the blame for the demise of sensible commentary on economics. Too many seem all too happy to offer up regular forecasts of financial market variables such as exchange rates and short-term interest rates, despite a huge research literature indicating that changes in such variables are not predictable.

Such economists need to learn some humility.

Too many others seem all too happy to advocate significant government intervention in financial markets on the slightest pretence, despite a huge research literature indicating that such action inevitably has unintended consequences.

Such economists need to learn some economics.

10. Today's quote
"If hard work were such a wonderful thing, surely the rich would have kept it all to themselves." Lane Kirkland

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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#3.   Who are these people giving out lists of how to 'stop the desire to deleverage'.  Like it's some sort of nasty bacteria.  If we don't want to live out lives borrowed to the hilt and living on the edge of disaster, that seems to me our decision.

...yes, I would've thought the best cure for a bubble was to deflate the over-inflated price...not print so much money people wouldn't hold cash, what are these people thinking

Maybe the chch rebuild munny has gone into existing properties with an aim to surprise is it....cuts out the council grab and slices off the LBP requirements...

Why, Wolly, yes,  I do seem to have predicted this exact sequence....and there are an awful lotta folk in at Placemakers and Bunnings.
For decks, of course. 

The Canterbury rebuild figures are fascinating. Christchurch has a population of about 360,000 versus about 50,000 for Waimakariri and 40,000 for Selwyn. The major urban areas in the two outlying councils are about 20 km from Christchurch being Kaiapoi, Rangiora, Rolleston, Lincoln etc. More new houses are being built in these areas than in Christchurch.
But much more house repairs are occuring in Christchurch than elsewhere in Canterbury.
So the picture is that if your house was damaged but repairable in Christchurch, there is no constraint in doing that. But if your house is unrepairable, there is some sort of restraint in rebuilding in Christchurch and you are forced/ encouraged out to Selwyn or Waimakariri.
This is not what Christchurch people asked for in the 'share an idea' campaign run by the City Council. They wanted a bike friendly city. What they are getting is a 20km commute to work, family and social activities, that is only possible by car.
The theory behind the Greater Christchurch Urban Strategy was that we would get a compacter more efficient urban environment. But the empirical data indicates this is not happening. Questions need to be asked of our political leaders like Bob Parker and Gerry Brownlie why this is. Democracies only work when our leaders are truly accountable.
Commentators like PDK, cannot ignore results like these. The application of 'first principles' need to be supported by empirical data.
Especially as these plans are common throughout New Zealand and they have other unintended consequences of forcing up house prices.  

The most obvious answer is that it is cheaper to built in Selwyn and Waikariri.....people are not stupid unlike most politicians.
I think it does not need rocket science to know that if it is cheaper to repair, then that is the best option, but if you need a brand new section with house, it is no longer affordable in Christchurch as it was. And also it is obvious that Insurance payout is insufficient for a new section and building.
Surely Brownlee and Parker will have simple answers to this "problem"? but telling the truth is not really any Politicians forte.

In short, Brendon, Preferences Trump Planners.
Pertick'erly when said planners have managed (somehow!) to foobar the local housing market.
File under 'Unintended Consequences', 'CCC', Urban Development Strategy'

#1 Is called Momentum.....with enough leverage and media hype, all asset price now looked attractive.....a bit like house prices in auckland.......
#3 It seem all Developed Economies has gone through all 5 steps and yet the economy is still not improving and unemployment is still above tolerable levels..except for the financial sector.  
I would really like to see what is step #6 ???  The Central buying up all assets from the private sector and all goverment bonds as well to provide enough liquidity for "Escape Velocity" ?   We wait with bated breath as to what Shinzo Abe will really do...the results of his experiment will surely be worth the wait !!!

David, can you please explain #1 to me as i don't understand it.
He says
"Is there a rational way to explain these contradictions? Will the business and market optimism be sustainable? Or is this sudden euphoria just another financial bubble, sure to be punctured if the grim message from recent economic indicators sinks in?
The likely answer to all these questions is yes."
Question 1
Is there a rational way to explain these contradictions?
Answer YES
Question 2
Will the business and market optimism be sustainable?
Answer YES
Question 3
Or is this sudden euphoria just another financial bubble, sure to be punctured if the grim message from recent economic indicators sinks in?
Answer YES
Q2 is sustainable and Q3 is a bubble about to burst. Hmmmmm i'll have to go to a high level economics class to understand that one, unless you can help David.

Poor old Bernard , it's a bloody tough time to be an arch gloomsteriser , when it take 72 hours to assemble just 10 top stories of gloom and armageddon ......
....... when you go to the Well-of-Woe , and your bucket keeps coming up full of gold pieces , instead of slugs ..
Here's another exerpt from the best of the Star Wars films , to cheer you up , big guy :
Dark Helmet : " Before you die , there's something you should know about us , Lone Starr . "
Lone Starr     : " What ? "
Dark Helmet : " I am your father's brother's nephew's cousin's former roomate . "
Lone Starr     : " What's that make us ? "
Dark Helmet : " Absolutely nothing ! ... Which is what you're about to become . "

I notice your attention span seems to drift alarmingly quickly these days GBH. The top 10 above have been collated by the site principal; if they were Bernard's they would be rather different I imagine.
Do concentrate.

72 hours , you'll notice ! .... he needs another day off , to compile the Top 10 . Bernard will be back tomorrow  ... Saturday to Monday away  ... which is why I said " 72 hours " ....
Do stay awake !

Good try Gummy.
BH's last Top 10 was @ 3pm on Friday. 72 hours later is right about now, not tomorrow.
Time to try a bit harder on that pesky maths as well........

You're so right , dammit ! ...... it's gonna take Bernard even longer , 90 to 96 hours to dredge up 10 tales of disaster ...... oh " Captain Catastrophe " ..... how hard it is for thee ....
..... peak gloomsterisation has passed !
( add that up again , Gummy , 3pm Friday to Saturday 3pm is 24 hours .... add Sunday , ... to 3pm , ... ummmm ..... duhhhhhhhhh ! )

Bear with me Gummy. Still pedalling hard. Almost at Wellington now...
Easy to find reality. Ya just need to know where to look. ;)

... in the words of Dark Helmet ( upon finding that the space ship's self-destruct cancellation button hadn't been installed ) :
.. " Out of order ? ... F#ck ! ... Even in the future nothing works ! "
[ from the best movie in the Star Wars frilogy , Spaceballs ]

Don't worry if the share market collapses it's only super funds being lost and there's plenty more where that comes from.

... the only ones predicting a sharemarket " collapse " are the same one's who're mightily pissed off now because instead of collapsing in the past , as they had predicted , it went up ....

Nope, wel Im not p*ssed, Im very glad I am out.

You passed up a 25 % gain on the NZX last year then ......
...... that buys you alot of  tin hats , candles , baked beans and bullets ...

First we taxpayers stump up the subsidy to get this Government's high speed broadband initiative up and running - now Key looks to over rule the Commission's decision on how ADSL over copper should be priced - as we can't jeopardise the price/take up of his little pet UFB project, now, can we?
Consumers really are paying dearly for JK's propensity to 'pick winners' that do nothing but drive up costs in the light of day.
Chorus chief executive Mark Ratcliffe said Chorus would also ask the commission to ‘‘update its policy framework’’ to ensure the success of the Government’s ultrafast broadband initiative.
Chorus has argued that cutting the wholesale price of copper-based broadband by the amount suggested by the commission could undermine the $3.5 billion UFB initiative. That is because it would make fibre-based broadband less cost-competitive in comparison with existing copper-based broadband.
The commission has previously maintained that any such policy change would be a matter for the Government to consider, rather than the commission.
Prime Minister John Key signalled that he might be prepared to intervene in November after describing the commission’s draft determination as ‘‘very problematic’’. 

The last sentence more accurately arranged gives us:
The signals are that Prime Minister John Key's leadership is ‘‘very problematic’’ and voters might be prepared to intervene (in or before November 2014).

Which this actually suggests is its chorus looking to protect its installation monopoly. 
Looking at current pricing my $200 a month plan for 150gb will go to $200 a month for 1TB under some plans Im seeing, or I can drop to about $120 a month for 250gb.  However Ive got an indication that fibre installation could be in the range of $ they want 1 or 2 year lockins to get that returned.
Holding up ADSL's pricing artificially is crazy, let the market become competitive.

NB I see nothing wrong with a Govn seeding a sector with specific improvement to the Nation's wealth.

Seeding a sector?  Well I suppose that's one way of describing it - or you could describe it as the government entering the market with $1.3 billion dollars in paid up capital courtesy of the taxpayer - see Crown Fibre Holdings.
And the wiki entry;
and you'll get a better understanding of what JK means by "problematic".

Well I dont believe that simply giving handouts to ppl is the way to go.  Doing things like creating a broadband network country wide that allows ppl to work from home or say commute into the local rural town yet connect to where the work is, is a pretty good idea.  They get to stay with thier family and get housing at a reasonable cost....and the communities continue. Given the coming problems with energy and food its a huge thing IMHO that we will be very thankful for.
"problematic" well on the one hand we have the commercial companies that have a state granted monopoly but are being regulated, but dont want to be.
So without more info it may well be harmless.

As you know Kate, I am already ripping the rewards and am getting 100Mb download with my UFB, so are my immediate neighbours...I don't consider myself a middle class but an average working class with an average income.  I do pay tax to fund the Crown Fibre Holdings I suppose but also get the rewards...what is it so wrong about this pet project of JK :)

Here's what JK means by "problematic" as I read it from putting together the various articles.  Initially Crown Fiber Holdings and its private sector partners were not to be subject to CC rule - to give the nascent fiber industry a chance to get on its feet via freedom from regulation.  The rest of the industry objected and the government scrapped that regulatory holiday idea and instead via contract agreement took on any regulatory risk that its partners might have.  Hence it must compensate them if regulation forces their profits down. Now that the CC has made a ruling on maximum copper broadband pricing - the liklihood is that fiber will become less competitive and the whole government broadband initiative commercially unviable.  Therefore, I assume the parnters will want argue that ruling triggers their regulatory compensation even though the CC ruling didn't relate to fiber pricing per se.  So JK is thinking he might need to legislate to keep the CC ruling on max copper prices from becoming law - otherwise we taxpayers are up for alot more than $1.3billion and the rest of the fiber rollout doesn't happen.
In other words - their great idea is a shambles and those of us on copper will pay.

Yeah agreed he shouldn't have intervened the copper side of things.  I think he might be protecting Chorus' bottom line ooops.

Just curious dgz - what are you downloading that makes the ultra fast worth having?

Hi Kate, It's not downloading as such, but due to work commitment, I constantly have to watch TVNZ OnDemand, iSky streaming online after hours.  There is no way I can be sitting at home watching the news at 6:00pm.  My kids are also using it alot for Youtubes so the high speed will prevent TV programmes / Youtube clips from freezing from time to time.  Hope that makes sense.

From Wiki: - CFH will invest NZ$929 million directly in Chorus with 50% being non-voting shares and 50% interest free loans.
I guess Chorus's Mr Ratcliffe realises he an owned man and he is putting up a brave front for the public and other's benefit.

A forensic investigation of the Chorus share register would be an amusing exercise.

Re: 6
We should be very thankful it is not a trend here - yet. We should also be wary of its arrival.
David, you need to get out more, or at least do better research! Seriously!!!!
Youth unemployment in Nz is high, as is student debt, and increasing numbers of 20 somethings are living with their parents. Lots of recent graduates are struggling to find work in their fields of study - many architects and engineers out there working in retail etc, and maybe not unemployed but underemployed. They can get by only because they keep living with their folks
Yeah maybe its not quite as bad as the USA, but you are seriously downplaying the issue in NZ. 

Very well said, but then DavidC is one of the rosey glasses types IMHO and not a gloomster.
I see lots of 20 somethings with large debt, poor or no job offers and they are not happy, meanwhile apparantly we are recovering and teh RB seems determined to sit it out not matter the damage after all he's a very serious person....pain is needed, to others of course....

David, you need to get out more, or at least do better research! Seriously!!!!
Bulls eye MIA.

Hey Interest, just what Ive been saying about some of your articles on the exchange rate etc...pointless 20/20 hindsight.
"Too many seem all too happy to offer up regular forecasts of financial market variables such as exchange rates and short-term interest rates, despite a huge research literature indicating that changes in such variables are not predictable."
Maybe take a note out of your own book......

Matt in Auckland, do we blame the lack of jobs for graduates on the economy or on them for studying the wrong thing? To me it seems simple, to many kids leave school to go study and uni and pick the cool things to study and don't even think about the job it will lead to.
A classic is the number doing media studies yet we have a financial services industry that can't get staff. (I'm trying to employ someone but I'll have to train them!)
We could also blame the uni's as they only care about the money they get from providing the training. Maybe their funding should be based upon the number of students that find work in the field they graduated in??? The higher the % the money money and so the lower the fees they charge??

In a society that is becoming ever more specialised its not un-reasonable that the degrees become more focused and specialised....or maybe its the cart before the academia is producing new degrees as it looks neat and then offers them with no hope of work in the real world.
A counter to that was when I did my degree I was told that the 70 of us were all that was doing it Nation wide, yet the ppl retiring every year alone wa 6x greater let alone more work.  It was easy to get work then (at the start) even had employers poaching....3~4 years later there was no work and I was berely hanging on to get my Degree finished...
What changed? the economy and hugely....
Media studies, yeah I listened to a last year student who was complaining her media degree degree was useless she hated teh idea she was going to stay at the countdown checkout....Im sitting there thinking.....well you can guess.