Here's my Top 10 links from around the Internet at midday today.
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 #2 on the ice melting in Greenland. A cracking read in Rolling Stone.
1. Could Fletcher go really big on housing? - Marta Steeman at The Press has an important interview with Fletcher's new CEO Mark Adamson in which he says Fletcher is reviewing why it isn't building thousands of affordable houses a year, rather than the current 300 or so.
New Zealand needs home builders on a large scale.
Fletcher's history as one of the major builders of state houses from the 1930s onwards is important.
The government and the Productivity Commission have wondered and worried for some time about why our house building industry is so poor at producing affordable houses at scale. We have lots of piddly little bespoke builders, but very few factory-style builders.
If Adamson can make it happen at Fletcher then all power to him.
Here are the key quotes:
"My first question is why aren't we making more. And we're a New Zealand company, why aren't we building more throughout the country and not just Auckland."
Adamson was in Christchurch looking at the several roles the firm has in the rebuild.
"So what I've instigated is a wholesale review as to how we can be far, far bigger, orders of magnitude, not 300 becomes 400, but hundreds become thousands over a period of time. And not just the houses we currently build."
2. Greenland is melting - This is a fantastic Rolling Stone piece on why the ice in Greenland is melting faster than it ever has. It profiles glaciologist Jason Box and his 'Dark Snow' project.
Though Box had predicted the severity of last summer’s melt, he struggled to understand why so much ice disappeared so quickly. Some climate modelers pointed to changes in atmospheric circulation patterns that pushed up temperatures across the Arctic. Others attributed it to the heat-trapping properties of low clouds.
But Box decided to return to Greenland this summer – his 24th trip here in the past 20 years – to test a more startling hypothesis, part of what he calls “a unified theory” of glaciology: that tundra fires in Canada, massive wildfires in Colorado and pollution from coal-fired power plants in Europe and China had sent an unexpectedly thick layer of soot over the Arctic region last summer, which settled onto Greenland’s vast frozen interior, increasing the amount of sunlight the snow and ice absorbed, which in turn accelerated the melting.
3. Some good news - Especially for Gummy Bear. FT reports China and Europe have agreed to suspend their big trade dispute over solar panel subsidies.
4. Chinese growth at 3% - Bloomberg reports Barclays has forecast a scenario where China's economic growth rate falls to 3%. The fallout is not pretty, particularly for Australia.
A copper price collapse of more than 60 percent, zinc cut by up to a half and oil down to $70 a barrel. That’s the fate facing world commodity markets should China’s growth dip to 3 percent in the next three years -- a scenario economists at Barclays Plc (BARC) are now examining.
They’re not the only ones building models based on a steep decline in growth in the world’s second-biggest economy. Nomura Holdings Inc. (8604) estimates a one-in-three chance of a sharp drop by the end of 2014, and Societe Generale SA sees a “non-negligible risk” of less than 6 percent growth this year and an outside chance of 3 percent average expansion for this half and next.
5. The Cypriot mess - WSJ has a look at the festering pile left in Cyprus after its 'bail in' gutted depositors. One unintended consequence is that the Russian mafia might end up in control Cyprus' banking system through a debt for equity swap. That will give the Russian mafia the right to borrow from the European Central Bank.... ooops...
The economy is forecast by consultancies such as Ernst & Young to shrink by more than 10% this year, which would be more than the 8.7% forecast by the troika in March, and to continue contracting through 2016.
These are the predictable consequences of the experiment its lenders are imposing on Cyprus. But there are some unpredictable ones too.
6. Chinese default? - Bloomberg reports China's Local Government Financing Vehicles face rollover cliffs amounting to US$21 billion this year. Keep an eye on this one.
“With bonds approaching maturity, the weaker ones will have some problems as cash flows that they generate are very weak,” said Christine Kuo, a Moody’s analyst in Hong Kong. “I wouldn’t rule out the possibility of the government showcasing some companies to go under.”
Refinancing will be a challenge after corporate bond sales slumped to a two-year low in the second quarter and policy makers cracked down on shadow banking activities that bypass regulatory limits on lending. Premier Li is seeking to shift the focus of the world’s second-largest economy away from government-led investment and China this month cut taxes for small businesses and eased controls on bank lending rates.
Local governments set up more than 10,000 LGFVs to fund the construction of roads, sewage plants and subways after they were barred from directly issuing bonds under a 1994 budget law. A 4 trillion yuan stimulus plan during the 2008-09 financial crisis swelled loans to the companies, which they have been rolling over or refinancing with new note sales.
LGFVs may hold more than 20 trillion yuan of debt, former Finance Minister Xiang Huaicheng said in April. That’s double the figure given by the National Audit Office in 2011. The government must be on “high alert” to the dangers of their rising borrowings, Vice Finance Minister Zhu Guangyao warned on July 5, after central bank Governor Zhou Xiaochuan said in March that about 20 percent of the debt is risky.
7. Why isn't the money circulating? - One of the great mysteries of the post-GFC world is why isn't all the money printing creating inflation. Maybe it's because it's only just offsetting the deleveraging happening in the shadow banking sector. This chart courtesy of Zerohedge is worth looking at. The red line is shadow credit and the black line is traditional credit.
While the Fed needs to slow QE modestly due to the slower rate of Treasury issuance due to a momentary contraction in deficit funding needs it can't possibly halt it, at least not until the private sector picks up "leveraging" where the Fed leaves off. This would likely entail an even more epic housing bubble than in 2006 to restart the RMBS and HELOC monetary conduits.
8. Obama focused on income inequality - It may not be the same problem here, but Barack Obama is now banging the drum via this NYT interview about the problems of growing income and wealth inequality in the world's largest economy.
“If we don’t do anything, then growth will be slower than it should be. Unemployment will not go down as fast as it should. Income inequality will continue to rise,” he said. “That’s not a future that we should accept.”
9. MOOC madness? - Massive Open Online Courses (MOOC) are all the rage in the world of tertiary education. But are they any good? This piece in Slate questions the conventional wisdom.
While MOOCs may serve a purpose as nerdy edu-tainment for people who are so inclined, a workforce trained without close contact with professors of any kind might as well not attend college at all. Going to the library and reading a bunch of books would be equally effective, and probably a whole lot cheaper.
10. Totally John Oliver on Goldman Sachs' metals warehousing techiques.
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