Here's my summary of the key events over the weekend that affect New Zealand, with news that one bank has reduced local fixed mortgage rates below 4% for the first time.
Pushing lower is SBS Bank who have announced a 3.99% one year 'special'. This is a new all-time low, only ever beaten by the heavily subsidised State Advances loans for returning servicemen after World War Two. Money is cheap in New Zealand these days, adding fuel to real estate asset prices. Obscene gains are dropping into selected lucky people's laps.
Elsewhere, China said it closed down the nation’s biggest “underground bank,” which has processed more than 400 billion yuan (NZ$100 bln) in illegal foreign currency transactions, as the authorities tackle corruption and try to restrain capital outflows that have hit all-time highs this year. About 370 people have been arrested or face lawsuits or other punishment in the case, the official People’s Daily reported over the weekend, quoting police officials. The case brought the total for underground banking and money-laundering activities to 800 billion yuan since April, the newspaper said.
In Europe, the ECB is ready to act quickly to boost anemic inflation in the euro zone, its president said over the weekend, offering the strongest signal yet that they will announce more stimulus measures at its December 3 meeting.
In India, most of their Reserve Bank's 17,000 employees went on a one-day strike in what the central bank described as "mass casual leave". The walk out resulted in "some interruptions" to clearing and settlement operations at the central bank, but it said that its systems were largely operational. Four unions had called for the strike to demand better pension benefits. It was also against reforms that would reduce the RBI's regulatory powers.
In New York, the UST 10yr yield benchmark slipped on Friday, now at 2.26%.
But the US benchmark oil price is slightly higher, now just under US$42/barrel, while the Brent benchmark is just under US$45/barrel.
And gold is also marginally higher, now at US$1,076/oz.
The New Zealand dollar starts the week at 65.6 US¢. Against the Aussie it is at 90.7 AU¢, and is a whole 1c higher against the Euro than it was at this time last week at 61.6 euro cents. The TWI-5 is at 71.2.
Later today, we get the next update on our migration levels - this time for October. Last year, October was the highest month recorded for long-term migration, but in 2015 it has been far outstripped by net arrivals in February and September. A record result is possible for October 2015 so we will be watching that data closely.
If you want to catch up with all the local changes on Friday, we have an update here.
The easiest place to stay up with event risk today is by following our Economic Calendar here »
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25 Comments
Obscene in the sense that financing such adventures from commercial endeavour is not realistic.
Now, that demand is clearly falling we find ourselves with massive overcapacity of manufacturing capacity and commodity output. Inventories, both in manufactured goods and commodities are breaking record levels every day now. We are “swimming in oil” in North America, Europe and China while desperate producers keep churning out a product no one wants. The story is no different in coal, gas, iron ore, steel, cement, cars, glass, trucks, heavy-duty equipment etc. A massive inventory liquidation is underway which will lead to a new global recession in 2016.
This is the real reason why SWAP spreads are negative. The complete unwind, or even reversal, of global wholesale ?dollar? funding put extreme pressure on corporations (which overwhelm the market for hedging) as they realize they can no longer roll over debt to maintain their overcapacity. With a scramble for real dollars (note, a ?dollar? is a claim on dollars for which no dollars actually exists) the dollar exchange rate is surging; both compounding and reflecting the problem at hand.
Historically, large and sudden shift in the value of the global reserve currency is synonymously with global turmoil. We guarantee you that this time is not different. We are heading straight into a massive deflationary inventory liquidation with mass defaults across the globe. This is what a negative SWAP spread is really telling us. Read more
Agreed, this is one of the few times I do not begrudge them their windfall. They had no way of knowing which way it would go when they bought the place. Interesting that I used to live not far from them while based at Whenuapai, before coming back to the regions. Wonder what my $80k house in nappy valley (Pahi Place) would fetch now?
It is actually worse than that.
For example, if nominal growth is 3 percent and the debt GDP ratio is 300 percent, the implied equilibrium nominal rates is around 1 percent. This is because at 1% rates, 100% of GDP growth is necessary to service interest costs. Read more
New Zealand's latest GDPE annual growth rate - 2.8325% at $240.591 billion
Bank claims - $394.591 billion
Central and Local government and private debt ? - fill in yourself
Nonetheless, a debt to GDP ratio north of 200% is not inconceivable, neither is a ~1.4% equilibrium nominal interest rate.
How many people have been forced out of their homes as they can't pay the rates due to these ridiculous valuations. Friends and social connections built up over a lifetime are tossed aside. Family that once was close are going to be seen far less often.
For the poor people buying these properties they are signing into slavery for the rest of their lives... and will potentially have a very low standard of living... all the money will go on the mortgage...
Progress? in the name of $$$$?
And what a cataclysmic disaster if the economy tanks and all the jobs evaporate... the banks (that survive) will own everything!
Here is a thought...
NZ govt guarantees to move some Govt Jobs (lots) to a new city they are going to build... this means jobs... kick start a load of housing (on affordable land)...
NZ govt PRINT the money they need (no foreign debt).
Build the roads/offices etc. in a "planned town".
Would it ever happen though as JK has too much vested interest in the banks that make money off NZ debt...
...the biggest shareholders of Bank of America in which John Key holds a large chunk in shares according to the government site pertaining to personal interests of Politicians...
We could tempt him by having THIS city pay for his golf membership (and kickbacks) as well...
Mind you; JKs mates at Fletchers would be REALLY happy!
It's not like they knew 20 yeas ago that this was going to happen.
I also don't think they landbanked and sat on it for years, speculating that the price would go up.
I agree with Jimbo that the gain should be taxed, but the price they got for their land seems to be demand driven.
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You could argue that they've provided a service by looking after the land for 20 years...not polluted it or contaminated it, or made into a landfill.
Are you saying that the only allowed way to 'get rich' is by providing a service, export, or be an employer?
I'm not arguing the point, I'm just curious.
Except if we see property drops those could be booked as losses and a tax rebate?
I'd live with say 15% CGT myself but no losses could be booked. The NZ voter fo course wont have anything to do with it. What tehy should be doing is saying we'll drop PAYE to allow from the extra gains from a CGT so its tax neutral .
Or go further still. Remove the capital/revenue distinction and tax all income at a flat rate of 10 - 15%. Losses could be ring fenced to match the same income stream, ie, if you lose out on house speculation you don't get tax refunds against wage or salary income. Maybe people will make less riskier choices.
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