Here's my summary of the key news overnight in 90 seconds at 9 am, including news the Cypriot parliament has rejected the EU-IMF bail-out deal. There are even unconfirmed reports the finance minister has resigned.
Alternate haircut arrangements were floated, especially one where accounts of less than 20,000 euros would face no levy, and those above will face a bigger haircut. But in the end the rejection was overwhelming. The vote was: No = 36, Yes = 0, Abstain = 19.
At the same time, there are reports the Cypriots are turning toward Moscow seeking alternative funds.
The bottom line is that the EU and IMF have made a complete shambles of the situation, totally underestimating the impact of what they want to impose. Some are even calling it 'blackmail'. Everyone is scrambling to to respond to a situation that has spun out of control, something that will get worse now that the parliamentary vote has gone against the government. But in the end, it is Iceland redux - a consequence of a banking system far bigger than the country's GDP. Its exposure to Greece has sunk it.
In the US, February building permits in February were strong as expected, climbing to their highest level in five years. January's data was revised higher too. This data will go a long way to overcome the US federal budget cutbacks, and may well signal a continuation of the US economic recovery in Q1.
China’s foreign direct investment rose for the first time in nine months in February, a sign confidence in the world’s second-biggest economy is improving amid optimism growth will keep rebounding.
Gold has resumed its climb and is now at US$1,610. US oil on the other hand has fallen nearly US$2 barrel on the day and concern about the fate of a bailout for Cyprus has made investors in Europe and on Wall St wary - the Dow is down 0.3% in midday trade.
Today we get to learn the size of our current account deficit in the final 2012 quarter. Anything different to 4.7-4.9% of GDP will surprise the market and that will show up in our exchange rate.
But we are starting the day with very strong dairy prices. Today's Fonterra auction was up 14.8% on the previous one, which itself was up over 10%. Dairy prices have risen 25% in a month, and more than 30% in NZ$ terms. Volumes sold were at the low end however and likely to stay that way as the season winds down and we recover from the drought.
The kiwi dollar starts today basically unchanged at 82.3 USc, 79.5 AUc, and the TWI is at 75.9.
No chart with that title exists.
56 Comments
Bob Eisenbeis was a FRB functionary. He writes for Cumberland Advisors. His coments follow:
Their funds (Europe and perifery) are now at risk, regardless of what their governments or EU ministers say. Claims by politicians that Cyprus is a unique event will fall on the deaf ears of rational depositors. The damage has already been done.
HGW
Finally the press in NZ are starting to realise what the RBNZ Open Bank Resolution policy is and what it means:
http://www.stuff.co.nz/business/money/8446573/Kiwis-could-face-Cyprus-s…
But it is a terrible reflection on our media that it takes something such as the Cyprus crisis for them to wake up and actually realise what Bill English and the RBNZ have set in motion. This whole issue has been ignored by the media for 18 months or more.
I think you are spouting a red herring,
a) Investment is always at risk, ergo the OBR just says so openly and it means banks keep trading in extremis so we get to eat, somehow it seems you cannot fathom that.
b) The OBR policy is published long before hand. It isnt a policy suddenly imposed over a weekend aka cyrprus so depositors can assess the increased risk to their money before hand and chose whether to leave it in or not. Sure the haircut could be imposed over the "weekend" if it happened but ppl should be awake to the deteriorating situation and withdraw funds early.....should be pretty obvious by now we heading into ever more dangerious waters.
regards
Interest earning investments like term deposits yes, savings in your current account no. If you only want a safe place for your wages and a means to conduct daily transactions for your business or household there should be 100% safety but no interest. Like a digital safe deposit box. Money ringfenced from the banks balance sheet and held at the RB. If the banks won't do it convert Kiwibank to a safe depository.
Can't expect "professionals" to be fully aware of what is going on inside a bank let alone mums, dads and their children. Completely unrealistic. The best thing about the OBR is the alignment of computer systems to make the Reserve Bank's job easier.
Steven I (like many others I would imagine) dont generally bother to reply to your posts but in this case I will make an exception. Ignoring from one moment the question of whether the OBR will act to destabilise the entire banking system from the onset once one bank starts to stumble, lets just address the question as to what happens 'the day after an OBR event is initiated'. To help you along with this I suggest you gather 10 associates of yours together and draw up a brief questionaire for them. On it you ask the following question. 1) Bank X, which you have $10,000 in accounts with has just failed and the RBNZ has declared an OBR event. The RBNZ has stated that tomorrow Bank X will re-open, but that $1000 of your money is going to be 'confiscated' - however you will have full access to the remaining $9000. What do you do?
a) I will leave my $9000 in the bank
b) I will withdraw a small portion of my money (say $500) and leave the rest in the bank
c) I will withdraw as much of the $9000 as I can.
Now, even allowing for the fact that your associates probably share some of your 'unusual' views on finance I rather suspect that at least half of them will entirely opt for c). As banks do not carry anywhere enough cash to sustain that level of outflow I can almost guarantee you that within a few days Bank X (which reopened apparently so successfully under the OBR aegis) would be closed pronto to stop this new bank run. The entire process that the OBR is meant to try and prevent (banks being closed for weeks) would end up happening in short order anyway.
Actually while you have your 10 associates together lets ask them a second question. 2) Bank X has fallen over as described above. This time you dont have any cash in Bank X, but you do have cash in the so far uncrashed bank Y ($10,000 to be exact). Your neighbour did have cash in Bank X and he has just told you he has had 10% of it frozen and disappeared by the OBR mechanism. The next day do you:
a) Do nothing, leave the $10,000 in Bank Y.
b) Remove some of the cash.
c) Remove all the cash you can.
Once again, I rather suspect some of your associates will choose b) and c). In no time at all Bank Y is undergoing a bank run.
I really cant explain it in any simpler terms than this - needless to say I will not be engaging in further conversation with you Steven, this has been struggle enough.
But what you need to remember is that by the time this stage is reached - which it must be stressed is extremely unlikely
Got any proof to substantiate your supposition, bearing in mind the US Federal Reserve has a need to print USD85 billion a month into the world's reserve currency system - a system we are highly dependent on given the latest current NZ A/C deficit release.
Well, it's a logical impossibility to prove that something is unlikely. But just this week the IMF was reported as saying
We strongly feel the framework for monetary policy, including a flexible exchange rate, has been one of the reasons New Zealand is in a relatively resilient position, compared with some other countries
This is just an example of the more general insurance question - is it cheaper to accept the possible cost if a risk is realised, or the certain cost of insuring against that risk?
Should Australians be forced to insure their houses against earthquake damage?
Should Auckland have a fully equipped fleet of snow-ploughs on standby?
I laughed when I saw that statement from the IMF. Might as well have said we congratulate NZ on the do nothing differently approach. We remain the monetarist poster boy in their now shown to be defunct new world order. We should cancel our subs - start a run on their bank.
It is all you can do AJ...be aware and ensure you have good plans in place. It is better to owe money to a bank than lend it unsecured. Perhaps all depositors need to write their own contract with the bank when they have deposits. The present system treats depositors like sub-contractors and we all know happens to Subbies when the proverbial hits the fan.
I have been toying with the idea of Banks having to have a Depositors Asset Scheme. Instead of selling off all the mortgage instruments they should be made to hold a collection of those instruments to the value of depositors funds. A depositors asset scheme can still earn interest income from the mortgage instruments held. It would offer security to the depositors in the event of failure. The bank could go under but the Depositors Asset Scheme would be able to trade under a new structure that would be prepared in advance and able to be operable almost immediately.
At the end of the day it is the depositors who provide the banks with the means to create money. It is the legislation that doesn't provide for security.
Wow bitchy....so you dont like your thoughts being questioned I take it.
There are a lot of possible scenarios, we could crystal ball gaze all day on what the future holds for us.
"Unusual", yeah sure as in many in here are Libertarians and / or Austrians so someone who wants to look at things as opposed to being a lemming or a devote acolyte, yeah OK whatever.
What you have described is a bank run across multiple banks, nothing more.
The problem with withdrawing your money is sure, lets say you have your $10k under the bed, what actually do you do with it? So for the first few days you take cash to pak-n-save, after that point pak-n-save's shelves are empty, assuming the tellers turn up to process your shopping cart for those days. So when we look at the Great Depression and bank runs and compare it to today. Most ppl shopped with cash and the shops could in turn buy locally with cash and have stock on the shelves. These days its all bought in bulk and and paid for by electronic means and distributed all using electronic means (buying deisel), ergo banks being open and trading is essential.
Im sorry you cannot grasp such things, maybe this has helped you a little further long that path. Even if not, well writing it helps me clarify my thoughts...so it wasnt wasted for me even if no one reads it.
regards
The OBR doesn't as far as I'm aware say anything about how much of your deposit will be available for you the next day. So while in Cyprus they're talking about 10% of your balance being confiscated, here the value could be much higher. In fact, with the risk of a potential bank run, I imagine it would be far higher.
Consider the bank in question (though I suspect it would happen to all banks in the country simultaneously, as in Cyprus). You have 10K in your account. The bank is closed, then the next day opens. Yes, of course you're going to take out everything you can get. Nearly everyone will do this so it would be necessary to limit the amount available to something quite small. Perhaps enough that you can buy some food and that's about it.
While you suggest that one bank crashing will cause people to withdrawl cash from other banks, I think this is only partly true. I remember in Germany (in recent years) the occasional bank going under, but people didn't rush to take their money out of other banks. On the other hand, the banks that go under there are usually small regional banks. If one of the big ones fell over then it may well be a different story. So if one of our big banks fell over it would certainly be cause for concern.
Regards,
There have been a few stories on it here Andy - http://www.interest.co.nz/category/tag/open-bank-resolution-policy
Gareth, unfortunately those stories never caught the general public's attention - it is a blunder of catastrophic proportions that allowed the blinkered RBNZ to move down a path to OBR without public discusssion - it is glaringly obvious they have a fascist mentality and believe we are not good enough to exercise democratic rights.
The Australian Fund manager LM Investment management (which has A$3 billion in assets under its sway) has just gone into 'voluntary' administration:
http://www.international-adviser.com/News/australias-lm-investment-mgmt…
Might be a few Kiwis with exposed investments.
EDIT: it appears something like $175m of Kiwi investors cash is at risk:
http://www.stuff.co.nz/business/industries/8448149/Smear-campaign-blame…
Have to say that that Mortgage Fund thats in trouble sounds just like a product good old Money Managers would have dreamed up..........
Good grief Kimy - most of the losses associated with this company ARE DUE TO INVESTMENT IN PROPERTY.
I appreciate you are on here to spruik property as an investment (and to rant in favour of lowered interest rates in order to benefit your loan portfolio) but do try and engage at least half your brain before wading in.
lol, look to Singapore.... Please don't. I can summarise how they did it. No dole, no DPB, no free public healthcare (yes, even lowest tier service which you can choose has a fee), no student loans (let alone interest free), no student allowance, no accommodation supplement, no accommodation benefit. Drop all that, and you get a nice low tax rate which encourages investment. On top of that, conscript every male for 2 years of military service, which provides a nice source of cheap labour for certain projects around the country. Of course, to stay in power, you either have to bribe and ignore democracy (NZ way) or rig elections and ignore democracy (Singapore way). With all its problems, I choose NZ.
Be humble, learn from the masters
Agree with the sentiment.
That is why I take notice of what Stephen Hulme has to say. He has a track record of sound analysis.. He has the track record of sound analysis on this web site for me to consider him a master.... andyh and andrewj are two others that offer sound analysis.
There is a lot of noise and property spruikers on the site that make it a little tire some from time to time. But the output from the masters keeps me coming back.
Yep. The collective wisdom here is NZ's best and most accessible brain trust IMO, plus, beats Facebook any day of the week. And despite differences, it's all in good fun, theoretically.
What is obvious is that we are mostly self-serving, with our opinions being a reflection of what we want to improve our respective positions, and so you can more or less fill out the gaps based on the posts.
If I had to guess, you would be female, perhaps Asian from Singapore, and clearly on a tear currently with your portfolio. You are leveraged, so have quite a lot to lose if this market goes tits-up. You are also smart, BUT, I reckon it's self-defeating to piss everybody off, thereby challenging rest of us to punish you... But it is your call ultimately.
One thing quite peculiar about your position though is the Japanese housewives thing; Clearly you don't want them taking out their chunk of your operating budget, but if you cut them down, the rest may follow, which might collapse your position, as they are pivotal. Also, if you get your wish and interest rates here are cut to the bone, you may someday end up one of them. Wouldn't that be irony you'd typically like to avoid?
a fairly accurate diagnosis there Idelbumski
I often wonder why outsiders bring with them their own measuring rod and never ask what the locals use as a measuring rod .. about a year ago some-one posted an astute comment on here that many if not all asian migrants arriving in auckland never travel beyond a days walking distance of Managere airport. It might have been BB3 who said it.
Well don't I look silly then. I also thought this ambitious Asian tiger girl was, while edcucated, a bit insecure hence the need to wind us up, but also maybe a lesbian or didn't rate herself in the looks dept, which would explain the need to be independently covered for retirement. Ironically, this would have made her very attractive.
Singapore? Natural advantage due being shipping chokepoint, large portion of population immigrant which you could argue are there to work hard, plus benefits of being a city-state (or having no unproductive or poorer areas).
As to what happened to NZ, or any other country who seems to be in the money; Often when you are on top, you will allow yourself to think you are better than others, and once this happens, you are on a slippery slope, individually or collectively as a nation. After a horrible five years, I believe the USA will come back leaner and meaner, but it is doutbful they could have ended up like this had it not been for GFC. This is why it might not be a bad thing if there is a shock to NZ, which brings us back to basics.
PS: You were wise to give the options trading a wide berth. 99% of people lose, but the brokers win every trade.
but the brokers win every trade.
Yes in principle,but not in reality - I sat opposite two nice accountant trained dealers running the bank's Harvard whizz kid programmed OTC currency options book during the ERM intergration years, prior to the introduction to the Euro.
The program required the house to always net sell premium and delta hedge the risk until expiry. I have never seen two men more stressed and under bonused in my life - both retired hurt to become proper accountants outside the City of London.
Oh yea. Writing calls on futures will give most mortals grey hair, including me. Worst experience was in Minneapolis wheat, early '08, when it went limit up four or five days in a row. In my defence, I believe it to be a worldwide grain market conspiracy against me. At least that's how it felt.
Mist and Idlebumski
Try this for a local measuring rod.
when I was a nipper our family travelled by train down to Rotorua at the invite of a local Rotorua family, the elder of which was a local Tohunga. We spent many pleasant days at The Blue and Green lakes. Think about that. Cant do that now. On the final weekend he arranged for both families to travel out to Maketu, a little townlet between Tauranga and Whakatane. Got to Maketu beach about midday. The whole Tribe was there. That afternoon the men waded out to the sand-bar with flax baskets and gathered pipis and mussels and caught fish. In the early evening the women lit large camp fires and boiled cauldrons, cooked the sea-food, and we had a feast. Something I have never experienced since. Then the guitars and the beer came out and we partied all night. It was heaven. For us kids it was paradise. What I would give to be able to re-experience that.
Ah yes, the memories of when none of us had a care in the world. Little further along is one of nicest pots in NZ; Ohope Beach, west end.
Fantastic, my son learnt to surf there and I retired to a boogie board - nice, safe, open ocean big wave beach. I still have two quite expensive but now unused surfboards under the house - oh well, it was bliss at the time and dogs were allowed on the beach during summer.
Ohope ! Stehen Hulme. We called it Our-hope. I learned to surf there are as three year old on my dads back. He lost me a couple of times but I popped up laughing out of the foam.
To this day I am most comfortable swimming in surf. The bigger the better. Actually I am less comfortable in rivers and lakes.
Yep. I know this is an old thread. But great memories.
The perils of property, once again rear their ugly head ? Why do we accept without protest the safety of property loans.
In February, the company issued a statement it said was aimed at providing “further comfort to closed-fund investors”, noting that its orderly sales of assets from its LM First Mortgage Income Fund was continuing, and that periodic capital distributions to investors would commence in 2013.
Yeah Right!!!!!
Sound familiar?
Maddison Estate at Pimpama in the Gold Coast hinterland - makes up 62.5 per cent of the assets in the fund.
http://www.abc.net.au/news/2013-03-04/lm-investment-investigated-for-po…
LM Investment is marketing its managed performance fund as having a diverse portfolio of assets. Yet a mortgage over one site - the 118-hectare Maddison Estate at Pimpama in the Gold Coast hinterland - makes up 62.5 per cent of the assets in the fund.
The land was purchased for $89 million between 2007 and 2009 by interests associated with Peter Drake.
Property values in the area have slumped since and independent valuers have told Four Corners the unimproved land would be worth, at best, at about half the purchase price.
Before any work commenced at the site, the borrowings over the land stood at about $250,000 – with a small first mortgage to the bank Suncorp and a very large second mortgage in the name of companies ultimately controlled by LM Investment.
The main asset in the LM Managed Performance Fund is the second mortgage over the Maddison Estate, established via a complex web of corporate structures, which has been growing as unpaid interest is capitalised into the loan. The mortgage currently stands at more than $240 million.
http://www.smh.com.au/business/the-scarlet-pimpernel-of-funds-managemen…
http://www.smh.com.au/business/a-man-with-so-many-hats-and-masks-cant-h…
http://www.lmaustralia.com/Downloads/Unitholder-letter/inv-PD-trilogy-a…
http://www.golemxiv.co.uk/2013/03/the-slippery-grip-of-growth-guest-pos…
and from one of the commenters an interesting link http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/8-13022013-BP/EN/8-13…
Andrewj - A very informative article. In particular I loved the quote from Steve Keen:
“Only madmen and economists believe in infinite growth on a finite planet. Time we restricted it to just madmen.”
It should be compulsory reading for all politicians and central bankers.
You're a bit slow on that one Hugh. David had it in Top 10 on Monday - http://www.interest.co.nz/opinion/63603/mondays-top-10-nz-mint-beppe-gr…
"The latest news: Russian energy giant Gazprom either has or has not offered to bail out the country in exchange for exploration rights".
http://globaleconomicanalysis.blogspot.com/#lZVS7HlR5Mek74xQ.99
Like ownership of all gas and oil inside the Cyprian EZ....this is growing legs fast.
Cyprus
Sure, everyone knew bank deposits were 900% of GDP and they all knew the Cypriot Banks were laying the bets off (re-insuring) by buying Greek Bonds
But it also seems that everyone knew that 80% of the 900% was Russian money. Everyone suspected a lot of that Russian Money was HOT money. The Germans knew. The IMF knew. The ECB knew. The Cypriot Central Bank knew. The Cypriot retail banks knew. They didnt ALL just wake up overnight and say "wow", lookee here, we have a lot of Russian Money here.
The question is, the $20 billion hot-money flowing through NZ each day. Nobody questions it. Nobody knows where it is going. Or do they? No data is published. Somebody knows. But they ain't telling.
You are right.
New Zealand should introduce and apply what I call a DGAS TAX or "DONT-GIVE-A-SHIT" tax .. the currency cowboys dont-give-a-shit about the consequences of their pass-through and wave good-bye transactions .. and the asian princelings and their followers dont-give-a-shit about what happens to new zealanders, and new zealand property prices in their rush to get out of there and get in here
Pretty much what I been saying for God know how long iconoclast....then you have to wonder sometimes who's on the other side of the trade.
Just how much outlayed to take a long position on NZD/USD.....we are not just talking money traders here. On to some good news the tide it turns, It has indeed been a summer to remember, just watch the next period unfold.
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