Breakfast briefing: US bank stocks shake off contagion fears

Business / news

US market pressure on regional banks eases; US CPI eases to 6%; Meta culls employees; China relaxes visa rules; Aussie sentiment low; UST 10yr 3.61%; gold and oil down; NZ$1 = 62.2 USc; TWI-5 = 70.6

15th Mar 23, 7:32am by David Chaston

Here's our summary of key economic events overnight that affect New Zealand, with news at face value at least, the US banking crisis appears to have passed.

American regulators are uncovering some very questionable practices at the banks they have closed or taken over. But the crisis seems to have passed. Equity markets are recovering the share price of many regional banks in the US as they deem regulator action successful over the weekend.

In the absence of the banking industry issues, today's American inflation report for February would have been a big deal. In the event, it reported CPI inflation running at 6.0%, the rate markets were expecting and down from 6.4% in January. The annualised rate between January and February fell to below 5%. This is progress of a sort, but still a long way from the Fed's 2% target. Food prices (+9.2% year-on-year) kept the rate up, and by more than expected. Petrol prices (-2.0%) was a major restraining factor. Rents (+8.1%) were another major helping keep the rate elevated and that kept their "core inflation" at 5.5%.

US retail sales had another weak week, up a mere +2.6% from year-ago levels on a same-store basis. Despite easing inflation pressures, their retail impulse can't keep up with retail inflation, so retail volumes keep sliding. This is the second straight week with this feature.

Meta/Facebook said it was laying off 10,000 employees in a major restructuring and downsizing. Another 5000 current vacancies will be left unfilled. It currently has 76,000 employees.

China is relaxing visa requirements for outbound tourism. They have added another 40 countries to its list for which group tours are allowed, bringing the total number of countries to 60. New Zealand is included. But the list still excludes Japan, South Korea, Australia and the United States.

In Australia, there were two consumer sentiment surveys out for March (here and here) and both were quite weak, holding near 30 year lows. Equally concerning is that consumer inflation expectations are rising there, these survey indicate.

Not quite so negative is Australian business sentiment as monitored by the respected NAB survey. It shifted sharply lower too in February, but only to a level we last saw in November. Confidence may be fragile and volatile they report, but conditions remained "strong".

As we noted yesterday, we are keeping an eye on global investment bank Credit Suisse whose share price has fallen sharply. They are a globally-important investment bank that has been struggling since the GFC. Oddly, their share price did not fall further overnight despite it being revealed that their auditors (PwC) reported “material weaknesses” in its financial control procedures for the past two years. And this review was prompted by questions from US regulators last week. PwC didn't identify the issues. Now Moody's has downgraded them to 'negative' after all ratings agencies cut their ratings in 2022 to barely investment grade. The largest shareholder in Credit Suisse is now the Saudi National Bank.

Credit Suisse has been dogged by outflows of client cash since the last quarter of 2022, when more than SwF110 bln francs was pulled. The bank said overnight that withdrawals had continued into this month, even after it started a huge campaign to win back client confidence. It is a big bank shrinking fast.

The UST 10yr yield starts today at 3.61% and recovering +8 bps from this time yesterday. (Recall, its recent peak was 4.08% on March 3, 2023.) The UST 2-10 rate curve is more inverted and now at -73 bps. Their 1-5 curve inversion is less inverted at -74 bps. Their 30 day-10yr curve is very much less inverted at -81 bps. The Australian ten year bond is up +14 bps to 3.46%. The China Govt ten year bond is holding lower at 2.90%. And the New Zealand Govt ten year is starting today at 4.31%, down another -11 bps from this time yesterday.

On Wall Street, the S&P500 is ending its Tuesday session up +1.1% with markets sensing the banking wobble won't derail much except perhaps the Fed's rate hiking track. Overnight European markets all rose about +1.9% except London which managed a +1.2% rise. Yesterday Tokyo closed down a very chunky -2.2%. And Hong Kong fell the same -2.2% but Shanghai only slipped -0.7%. The ASX200 ended its Tuesday session down -1.4% but the NZX50 closed down a lesser -0.7%.

The price of gold will open today at US$1909/oz and down -US$2 from this time yesterday but essentially holding its new higher level.

And oil prices start today down -US$2 at just under US$73/bbl in the US. The international Brent price is now just on US$78.50/bbl.

The Kiwi dollar has remained firm, still at 62.2 USc. Against the Aussie we are still at 93.4 AUc and a high for the year. Against the euro we are firm too at 58.1 euro cents. That keeps the TWI-5 at 70.6 and +50 bps higher than week-ago levels.

The bitcoin price is much higher again today and is now at US$25,668 and up another +7.0% from this time yesterday. And volatility over the past 24 hours has remained extreme at +/-5.4%.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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130 Comments

by IT GUY | 15th Mar 23, 7:35am 1678818903

https://www.nzherald.co.nz/business/construction-crunch-more-building-b…;

Construction crunch: More building firms fail, property downturn leaves homeowners in the lurch

by HouseMouse | 15th Mar 23, 7:38am 1678819081

Nothing to worry about, according to Dr Megan Woods

by Foxglove. | 15th Mar 23, 8:57am 1678823827

Perhaps not worried because realistically not long to go. News Hub reports the Greens assailing Labour over reneging climate response issues and TMP lambasting the Greens for more or less failing on the same. So yes it’s seven months out but this is hardly a convincing, plausible indication that out of this a united, stable and equitable government is in the making as a coalition, is it.

by HouseMouse | 15th Mar 23, 8:00am 1678820428

Not worried because she has consistently had her head in the sand, or possibly somewhere else…

by Pragmatist | 15th Mar 23, 8:45am 1678823138

TMC?

by Foxglove. | 15th Mar 23, 8:56am 1678823802

oh, tks. edited. won’t explain the freudian slip into a C.

by Pragmatist | 15th Mar 23, 10:37am 1678829825

No worries, just couldn't figure out who you meant. I assume TMP = Te Pati Maori?

by Foxglove. | 15th Mar 23, 10:48am 1678830482

TMC, trucking company used a lot when working in the USA twenty odd ears ago. Again need to scan my posts before hitting enter. That hour of the morning my mind just decided to pull something out of the past

by HW2 | 15th Mar 23, 7:58am 1678820324

There is a rental squeeze on too

Climate change, of course what else, is being blamed for unprecedented demand.

by IT GUY | 15th Mar 23, 8:09am 1678820942

Well people do need somewhere to live as remedial work is completed on their flood damaged homes.....

by HW2 | 15th Mar 23, 8:12am 1678821134

Yeah but they over inflate the issue. Weather events have been redefined as something else.

by powerdownkiwi | 15th Mar 23, 8:25am 1678821916

Bollocks.

Its just physics - you have to release the same amount of low-grade heat, as comes in in solar input. We forced that in two ways; we dug up (and burned into the above-ground biosphere) a lot of locked-away potential low-grade heat. Secondly, the result slowed the escape of that and the entropic low-grade heat.

So the planet is heating - the biggest capacitance was the oceans, they are nearly tapped-out. So we get more heat energy at the surface. So we will see stronger, more frequent, longer-lasting, tracking further from the Equator (because the surface heat is further away from same, driving the storm process).

If you need to stay ignorant of all that - then I can surmise you have a personal, short-term, need for it to not be so. Physics doesn't work like that, sorry.

by IT GUY | 15th Mar 23, 8:34am 1678822485

Totally agree with local NZ sea temps way higher and lack of blocking Highs in Tasman re the cyclone tracking. It looks, early days but looks, like the weather system may be flipping away from El Nino, Ruapehu may get snow this year.

by whakahokia mai | 15th Mar 23, 9:56am 1678827384

Absolutely right. That excess energy is locked into the system. I wonder how the predicted swing from 3? Years of La Niña to El Nino will impact our upcoming weather negatively with this excess energy. Hard to predict.

by HW2 | 15th Mar 23, 10:08am 1678828104

Weather forecasts cant accurately predict the next two weeks, how will they go with longer

Following cyclones Gabrielle and Halle, I really hope that we dont go into alert mode everytime there is a storm warning.

by profile | 15th Mar 23, 10:18am 1678828733

The "oceans are nearly tapped out", "heat locked in". Nice rhetoric chaps. Get some perspective. We are still coming out of the Little Ice Age.

Pacific Ocean heat content during the past 10,000 years

"We show that water masses linked to North Pacific and Antarctic intermediate waters were warmer by 2.1 ± 0.4°C and 1.5 ± 0.4°C, respectively, during the middle Holocene Thermal Maximum than over the past century. Both water masses were ~0.9°C warmer during the Medieval Warm period than during the Little Ice Age and ~0.65° warmer than in recent decades."

https://pubmed.ncbi.nlm.nih.gov/24179224/

by powerdownkiwi | 15th Mar 23, 10:24am 1678829072

The Renwick article puts that comment into perspective.

I wonder how some folk sleep at night...

by IT GUY | 15th Mar 23, 8:31am 1678822302

All the people who have bought a new home but their builder has failed need somewhere to live as well, as well as all the people who cannot settle on their new build..... Its all tip top HW2

by HW2 | 15th Mar 23, 8:38am 1678822734

In a recession (which by the way we dont have anything official) young people move home and there is more doubling up

So just maybe there is no recession

by blobbles | 15th Mar 23, 10:16am 1678828612

We are building and have insurance against the building going under. I thought it was a mandatory thing the banks made you do?

by refactornz | 15th Mar 23, 10:42am 1678830134

It would still cost you though because you'd lose a few months (+interest$) trying to find a replacement builder then they'll want to rework some things. All the while construction costs keep increasing.

by blobbles | 15th Mar 23, 2:10pm 1678842615

Construction costs aren't rising anymore, according to people I know. Actually they are shrinking as companies try to stay afloat, is what I hear. With the container shipping rates lower than pre pandemic, getting stuff in isn't costing anything like it used to. Add cheaper fuel, demand drying up, worker shortages being addressed...

by powerdownkiwi | 15th Mar 23, 7:38am 1678819095

https://kunstler.com/clusterfuck-nation/money-troubles/

'to a land of make-believe, where unicorns galloped over rainbows conjured by computer magic and utopian wishes of equity, diversity, and inclusion. The overhang of previously amassed wealth kept those dreams going long after we discontinued the rough and messy business of making stuff, and thereby generating real wealth. But now a klaxon blares, signaling the end of dream-time, and the nation wakes up in a ramshackle house with the floor giving way under the bed.'

But the crisis seems to have passed....

No, it hasn't - because it can't.

by HouseMouse | 15th Mar 23, 7:52am 1678819947

Exactly. Calling the crisis passed within one day???

by murray86 | 15th Mar 23, 7:56am 1678820187

True. I don't disagree, but when I consider what has occurred I realise that Joe Biden has done something no other US President, irrespective of party, has done as far as i am aware. He sent an extremely powerful message to the American people and to many around the world that simply cannot be ignored, and is I suggest having ripple effects. Joe Biden has told the people that they are more important than the bank, that the Government will protect their money, all of it, not just a limited amount, at the expense of the bank, investors and shareholders. Within a democracy, at this time, this is the most powerful message he could have sent. It will make all other financial institutions sit up and take notice, and consider their own practices, as they, very suddenly are no longer able to be certain that they are too big to fail, that they will be bailed out, no matter what they do.

If the US media pick up on this, the political outcomes will be huge. But then watch the money fight back.

by bw | 15th Mar 23, 8:06am 1678820774

I'm sorry. But I just had to laugh, even though your post is sarcastic humour.

How much more does Joe think the banks will chip in to the FDIC if his Administration is going to guarantee the lot, regardless? None. Would any of us pay for house insurance if Hipkins just told us that no matter what, we'd have any damage repaired by the Government. No.

by murray86 | 15th Mar 23, 8:23am 1678821808

Actually I don't think you get it it do you? Joe Biden also said the tax payer will not chip in one cent. The banks play their games and largely act with impunity, worldwide. And mostly they do it with their customer's money, not their own. Indeed they have even managed to get the laws changed overtime to severely restrict their liability even to their customers. Frankly their power is out of control. Or do you think a $7 billion profit by NZ's banks in a country of less than 5 million people is entirely appropriate? If the banks refuse to chip into the FDIC will they even be allowed to operate?

I am not being sarcastic. What Joe Biden has done has been very long overdue.

Your analogy by the way doesn't compare. Insurance companies are a different animal, but they too need to be properly regulated rather than being protected and the rip off they are being demonstrated to be.

by Galloleous | 15th Mar 23, 9:18am 1678825120

But they do chip in right....through monetary debasement as they print more USD. But "Oh Noo, the tax payer wont be affected at all..."

by murray86 | 15th Mar 23, 9:24am 1678825491

Who prints the money? Though? I do get it that banks do "create money" through their lending, but if it were that easy SVB would never have collapsed. If though you are referring to the Fed, then Biden has not said they would create the funds to pay for this, only that the banks would be paying for it through the FDIC.

by Baywatch | 15th Mar 23, 9:30am 1678825851

Reminds me of Helen Clarks quote affecting Air NZ shares

I'd recommend they hang on to them, because I am absolutely convinced that Air NZ has a viable future.

—Helen Clark

by Snow | 15th Mar 23, 9:42am 1678826569

He should probably short the Inverse Kramer Fund :)

by Galloleous | 15th Mar 23, 9:53am 1678827227

Sooo, just listen to Kramer haha

by Snow | 15th Mar 23, 1:13pm 1678839236

Haha yep just playing on rhetoric.

by whakahokia mai | 15th Mar 23, 9:52am 1678827168

Agree with you 100%. The message and implications seem enormous. One way to protect all depositors and not spend taxpayers would be to make all depositors very high ranking secured creditors. Just behind the IRD if in NZ. Or the IRS if USA. So the banks cash and assets would be used to pay these depositors before anyone else except the taxman of course. Unless we are missing something obvious. A massive statement to the banking world. In the past I think the depositors funds would go into the pot and once the secured creditors had been paid out, which I surmise included other banks, the depositors would take a loss (haircut) like the shareholders. Looks like not anymore. Hoe our government pick up on the sentiments and protect all of us depositors.

by Fossil Lover | 15th Mar 23, 8:08am 1678820886

And the inflation bubble grows. The end of fiat is nearing.

by GV 27 | 15th Mar 23, 8:24am 1678821844

The more I think about it, the only logical conclusion I can come up with is a debt jubilee. The flipside of that is that it would be the point at which you almost have to have an alternative financial system ready to go; etc lending rates based on the sustainability factors of what you're buying (e.g. apartment lending/townhouse lending costs less to service than stand-alone, etc).

That's literally never going to happen, even if fiat does collapse - which it may well do. But short of a shift to MMT and governments collecting interest as a form of taxation, not a complex financial system extracting it for profit. But ask yourself: can a government who can't update tax brackets more than once a decade step into the role of performative national debt management?

Answer: Lmao.

by murray86 | 15th Mar 23, 8:39am 1678822763

If there was to be a 'debt jubilee' GV, how then would we teach people to understand risk? I simply cannot see any long term benefit to it. I also believe that the banks must be more tightly controlled, and accountable and I cannot see a 'debt jubilee' achieving that, unless they have to bear the cost. And I can't see that happening. I can envisage a lot of other not so good consequences from one though.

by GV 27 | 15th Mar 23, 8:48am 1678823323

I mean I can understand risk, but if you're making people take on so much debt for something as basic as a house, then the concept of risk loses all meaning. If political and institutional operators like governments and central banks stuff it up, and we're normalising existential levels of debt at a household level, what's the point of risk management? Can you even manage that kind of risk at an individual level? These paradigms are already broken.

That's why I genuinely can't see a future under our current financial system. It's already figured it can push things this far, why would it suddenly walk back for the sake of the greater good. The future is worse, one way or the other. Either we let it happen on someone else's terms, or we try to make the best of what is going to be a crappy situation by taking some control.

by murray86 | 15th Mar 23, 9:10am 1678824646

"if you're making people take on so much debt" Who's 'making' them take on the risk? I understand the pressure many feel to get on the housing ladder, and the rip off that land lords have become, but it is still a choice.

I agree the system is broken and I too cannot envisage us being able to continue under the current system. I suggest that the banks are just pushing the collapse faster due to their negligence. Government is complicit in this too.

I have argued for some time now that the Government means to take control somehow. I don't yet have a complete picture of how that could or would look, but I think Joe Biden's step is a small one in that direction. But there will be push back.

by Nzdan | 15th Mar 23, 9:27am 1678825629

For many young people who do not have the option of living at home, they're stuck between:

Taking on a huge amount of debt to own their own house
Paying off a huge amount of debt for the Landlord's house
Living under a bridge.

Nobody forced people in the 1970's/80's to take out 2 - 3 mortgages at 20+% interest rates either, yet they still don't shut up about it to this day.

by murray86 | 15th Mar 23, 9:50am 1678827052

"yet they still don't shut up about it to this day." We only bring it up when people like you tell us we had it too easy and screwed the pooch for all who followed.

by Nzdan | 15th Mar 23, 10:02am 1678827741

Still pretty embarrassing to bring it up. The "spendthrift generation" that chose to rush out and buy a house in your early 20's, taking out 2 - 3 mortgages, because you couldn't save hard for a few years when term deposit rates were double digits and house prices were 2 - 3 x the average single yearly wage.

by refactornz | 15th Mar 23, 10:44am 1678830287

With prices increasing at 20%/year why would anyone want to spend an extra year saving? It's not that they couldn't save, it's that it made no sense to save.

by GV 27 | 15th Mar 23, 10:50am 1678830644

Correct me if I'm wrong, but wasn't wage inflation running pretty hot in those days too?

by Nzdan | 15th Mar 23, 12:04pm 1678835097

Yeah, which is why Muldoon had to introduce price and wage freezes in 1982. Because everyone was getting huge pay rises every year.

Maybe that's why everyone took out several mortgages for their first home because they knew in 3 - 5 years the burden of debt would literally halve from wage inflation. Terrible times.

by murray86 | 15th Mar 23, 12:36pm 1678836978

your timelines might be a little muddled. I recall the high interest rates came later, under the Lange Labour Government which started in 1984?

by Nzdan | 15th Mar 23, 12:57pm 1678838240

First mortgage rates peaked at 20% for around 12 - 18 months in 1986/87, but people like to make out it lasted for many years.

Mortgage rates either side of that from mid-70's to 91 were between 10% and 16%.

by refactornz | 15th Mar 23, 12:05pm 1678835104

Yes, so? That doesn't affect my statement at all.

by GV 27 | 15th Mar 23, 1:11pm 1678839067

It's quite possible for a smaller percentage of a massive number to be much bigger than a bigger percentage of a much smaller number.

Given we had a decade or two of house price rises without the matching increases in wage inflation, which has in turn pushed up the cost of debt higher relative earnings faster than earnings have increased, it seems like it's a pretty important piece of information, unless your whole point just that 20 is a bigger number than 7.

In which case: Yes, yes it is. And?

by whakahokia mai | 15th Mar 23, 10:14am 1678828454

Don’t worry I bought my house in 1991 and caught a lot of those high interest rates and it was tough at the time. But the current generation has my complete sympathy for the current unaffordability of housing in most parts of NZ. My wife and I regularly ask the question how would we get on in today’s climate given our same circumstances and the same house and the answer is we could not afford it by some distance. We had a 40k deposit and we paid 138k for our place in our early thirties. So 29% deposit roughly. Roll forward to today and taking current GV of 1385k we would need a deposit of 277k for 20% and a mortgage of 1108k. Insane. For the same house! We have total sympathy for your generation. Without the bank of mum and dad I don’t see how it can be done for an average family.

by GV 27 | 15th Mar 23, 9:48am 1678826888

Agreed, and if totally opting out of risk is now considered the most prudent approach to 'managing it' then there should be no one under 30 left in NZ and they should all be making a much better life for themselves in places that aren't NZ, like Australia. As I've suggested in the other story this morning, this essentially means NZ is functionally a failed state for a staggeringly huge portion of the population that the rest of the country is actually quite reliant on.

They just haven't figured out that last bit yet. Or maybe that argument about 'no one is forced to do anything' falls apart when you take it to its logical conclusion, which is 'no one is forced to stay here and underwrite pensions for older New Zealanders who are already minted either'.

by malamah | 15th Mar 23, 9:52am 1678827178

Yep, this is a powerful point. And one reason why it's so difficult to see an obvious political party who will progress this nation in a way which actually benefits those who currently live here. Until we're funding the education and healthcare system significantly more than we are funding well earning minted superannuants, we're on a slippery slope to becoming a literal nanny state.

by murray86 | 15th Mar 23, 9:59am 1678827552

A part of the debate is a requirement to not be extremist. I'm not arguing that people should avoid all risk. But they do need to be prudent about what risk they do take on. How would the market have fared if people started saying en-mass that houses were too expensive and they won't buy them at those prices? Our Government has to all intents refused to stop foreign buyers coming in and owning residential property (OK they limited them a little bit), and that would have been a complicating factor, nor have they prevented land banking or holding properties empty. So the whole market has been skewed to benefit the wealthy. But a part of life is to learn about risk, how to measure it and what it means. You can't jump off a roof without a parachute and not get hurt, and even if you do have a parachute, you might still get hurt.

Long term though it really is starting to look like the Government just doesn't want ordinary people to be able to build a good life here. the question is why? The whole problem is part of a bigger picture which is more than a little troubling.

by GV 27 | 15th Mar 23, 10:13am 1678828414

You can't jump off a roof without a parachute and not get hurt, and even if you do have a parachute, you might still get hurt.

Bit hard to not feel aggrieved when one bloke makes off with the whole planeload of parachutes, to be fair.

by GV 27 | 15th Mar 23, 10:13am 1678828436

"I got on the plane first, so these are all mine"

by Nzdan | 15th Mar 23, 12:31pm 1678836676

Like going to the Warehouse, putting 30 backpacks on your CC, getting on the bus at the first stop on a busy commuter run and putting 1 backpack on each seat. Buy 30 tickets from the driver who is in on it, and fix 1 to each bag.

People further along the line can either stand, buy a ticket from you at an inflated price (cost of bag + ticket + margin), or arrive late to work as they wait for the next bus. The next bus arrives with your relative doing the exact same thing. "Taking a risk".

by whakahokia mai | 15th Mar 23, 10:25am 1678829139

Applying the risk model to the family home, be it owned or rented has been a disastrous mistake I think. Rightly or wrongly the family home should always be affordable rent wise or ownership wise and should be somehow enshrouded in water tight legislation to keep it that way. Heck food/shelter/clothing are the basics for the citizenry and need to be protected from the risk of speculation. The trick is how do we get to that nirvana without breaking the whole system? It will require some bold political choices and the continuation of the current ongoing force of capitalist gravity to reduce house prices across the country to ‘affordable’. Whatever that is.

by murray86 | 15th Mar 23, 10:50am 1678830643

Totally agree. In fact you make the point I have argued for years now, tht fundamentally the family home MUST be affordable for the average family. I suggest that political negligence on the part of our politicians has created the current situation, ably assisted by the banks. I suggest that if the system needs to be broken to fix it, then break it! Do it now because the longer it takes to do it the more it will hurt. But at the root of the problem is the issue that I do not believe that the politicians understand that the system is broken, or have a vision as to what it should look like. So they will not any time soon, try to fix it.

by powerdownkiwi | 15th Mar 23, 8:49am 1678823394

It's just a logic-path if/then thing, Murray.

There is too much total forward bet, compared with the remaining physical underwrite, for current (assumed) total dollar-values to be supported.

The shortfall is by orders of magnitude; the rationalising of it will therefore be ditto.

The question - the only varaiable - is over what time period?

And the answers are two: long or short. Long won't happen; we wasted long already. Short will either be an agreed jubilee, or a collapse in faith/belief causing a collapse (as per should have happened in '08, but the cans have been kicked until they are unrecognisable...

by murray86 | 15th Mar 23, 9:17am 1678825079

The bet on the future is a big problem PDK, and unless the banks are dialled back severely the collapse will not and cannot be controlled. I suggest that the banks need to be dialled back hard, even severely, but can't see that happening. Politically no one in control appears to have either the wisdom, the vision, or the balls to do anything to avert the coming disaster. The species arrogance that somehow they can control the universe and avert disaster is frighteningly astonishing, more so that in the face of stark evidence to the contrary, it persists, with the final caveat that if all else fails God will return and bail us all out! Roll on Sunday!

by Baywatch | 15th Mar 23, 8:50am 1678823434

Debt jubilees date back at least 4,000 years to ancient Sumer, Babylon, and other areas of western Asia. Ancient kings would sometimes forgive societal debts as a matter of public stability, and some of them put the practice into law at regular intervals or triggered by certain catalysts.

by Beanie | 15th Mar 23, 9:36am 1678826203

The debts are so large that they are not going to be repaid under BAU. Hard to see a debt jubilee being agreed to by the creditors (excluding war), so they will try to inflate it away while pretending to control inflation.

Or it eventually just spirals out of control into default and severe austerity.

On a related matter I see our own balance of payments deficit has gotten even worse. For every $1 NZ earns overseas we spend $1.30. One day the bank will ring us to say the credit card is maxed out.

by Hamish | 15th Mar 23, 9:24am 1678825459

And while our trade deficit continues on this trajectory, our infrastructure and public services continue to slide backwards.

What's going on?

by Beanie | 15th Mar 23, 9:29am 1678825772

What's going on is we are sinking into the swamp of debt. There are too many people sitting on the wagon and not enough people pushing it.

by Hamish | 15th Mar 23, 9:51am 1678827064

Is this why the talent pool in politics continues to shrink?

The smart ones look at the books and realise it's too much risk to get in and out of politics before it all collapses........

by powerdownkiwi | 15th Mar 23, 10:37am 1678829865

Great question - but I think the answer is something different.

I think, for a while now, the narrative we all believed has been found increasingly incorrect. We all bought into growth-forever, we all excused ourselves because those others (who weren't as smart as us or they'd have been as rich?) would catch up soon when they got around to copying us.

But, increasingly obviously, the oysters couldn't catch up - because the walrus and the carpenter were eating them.

So those with consciences, concocted a different story; the woke one where you pay lip-service to oyster-eating by worshipping the last-eaten oyster (Maoridom). You address the overshot population issue (bad pun) by glorifying? Relationship types, every one of which will result in LESS issue.

And you - to avoid addressing the truth - appoint people on the basis of their alignment with both strategies; on the basis of race, gender, wokeness. Sometimes you can tick to boxes with one appointment; gender-bent Maori being the obvious example.

But knowledge? Wisdom? Skills learned over a lifetime? No, no value placed on them at all. They were largely held in older white male brains, and older white males don't tick those boxes. Thus we drift into mediocrity of leadership/decision-making.

Mind you - Marama Davidson and Bill English were equally population-ignorant; older white males are quite capable of letting belief get in the way of factual research too...

by murray86 | 15th Mar 23, 10:45am 1678830340

"We all bought into growth-forever" I'm not sure that is accurate PDK. I'd suggest you're being too extremist. I think most of us didn't really have a choice. We just went along with the system we had, played the hand we were dealt so to speak. Most of us had neither the education, knowledge or resources to challenge the system. That pretty much hasn't changed today, other than we can more clearly see that a small minority are vastly benefiting from the current system while everyone else pays. It was the politicians who have driven us to this point. It was they who had the power, and claimed the wisdom and ability to be able to create systemic change when it was needed. The trouble is - they didn't!

by whakahokia mai | 15th Mar 23, 12:08pm 1678835322

I look around me and I see the law of self interest at work everywhere. As it has been I think for time immemorial. Various systems have been tried over the centuries to sideline this for the needs of the community at large but have failed. Apparently we can make collective decisions that benefit the community providing the community numbers no more that 250 individuals. Anything more than that requires some form of governance and that’s where power struggles commence and the requisite “self interest’ manifests itself. A depressing situation unfortunately. There seems to be no optimal way to both manage our group affairs and live within the energy constraints of our planet without satisfying this very self destructive self interest drive.

by dumbthoughts | 15th Mar 23, 8:14am 1678821286

Or the average American is going to pay through inflation (particularly if interest rates now drop) to effectively bail out Uber for Golf Carts and AI Nude Art Generator 2.0

From what I understand, many tech companies and startups used SVB because "normal" banks wouldn't touch them with a bargepole owing to patchy revenue, unreliable cashflow etc - at least based off the reasoning given by various tech founders I follow on Twitter and LinkedIn (so I could easily be wrong here).

If your business model can only work by using a bank that was clearly not managing its affairs well, maybe that is a problem with the business model and there is a bit of a "risk trying to tell a message" story here?

by murray86 | 15th Mar 23, 8:34am 1678822480

interesting points. The banking industry has largely made life impossible in this world without having a bank account and have to manage money through them. In this the Government has been complicit. No one complains when the high tech fringe industries make people extremely wealthy, but no one wants to help them get there. Fundamentally the banks are trying to privatise the profits while avoiding any of the risks. I think Biden has just told them they will no longer get away with that.

A lot of the analysis indicates that the high tech companies who used SVB, burned through a lot of cash in short periods of time. That will be a nature of their business and clearly they were able to source investors to provide more when it was needed. That the banking practices were questionable is beyond doubt now, but i also note a comment where just a few months ago KPMG indicated the bank was "sound". Having the banks sit up and take notice is significant and important.

Looking past the surface though, the effects may run deeper, as many of those "fringe" industries are actually pushing out the technological boundaries, and if they cannot be funded, the US's technological edge may wither somewhat.

by nigelh | 15th Mar 23, 9:14am 1678824887

Sounds like he's doing what Obama couldn't/wouldnt do , main st not wall st but applicable to the banks.

While on Biden. Now his latest allowing drilling for Alaskan oil. What a FW.

Here we have Arden and James Saw shutting down further exploration in Taranaki, Biden initially shutting down new drilling in federal lands which was subsequently overturned and shutting down a gas or oil pipeline from Canada and now allowing oil exploration in Alaska.

First there's Trump, heaven forbid he gets in again and now Sleepy Joe. Ron deSantis or Ted Cruz have got to be better than either one.

Imagine Bernie Sanders getting in with AOC (Alexandria Occasional Cortex)

by Galloleous | 15th Mar 23, 9:17am 1678825027

Bitcoin Fixs This.

Thank Satoshi there is an alternative financial system that we can choose to peacefully opt into when we have done the work of figuring out what it is. As the saying goes, every one buys at the price they deserve, that just happens to be 20% higher than it was 4 days ago...

by Audaxes | 15th Mar 23, 8:16am 1678821418

Sabotage of Nord Stream won’t go unpunished

Britain today has a UniParty — the party of government, which seems to consist of the same people as the party of the opposition. Britain has reached where the US has been for quite some time — a cabal of political elites hijacking the country, operating its own agenda, regardless of which political party is formally in power — and the people at large having lost control of their government. That is why crimes like Abu Ghraib and Nord Stream go unpunished.

by lowercase capitalist | 15th Mar 23, 9:05am 1678824327

Who would even get punished for Nord Stream? Lots of finger pointing about who is responsible, not a lot of smoking guns.

by Baywatch | 15th Mar 23, 7:45am 1678819546

KPMG Gave SVB, Signature Bank Clean Bill of Health Weeks Before Collapse

Accounting firm faces scrutiny for audits of failed banks

by chebbo | 15th Mar 23, 8:48am 1678823293

The big accounting firms and ratings agencies get paid megabucks to convince regulators and investors that everything is rosy, not to give an accurate depiction of reality. This has been shown time and time again, right throughout the GFC, and well before that. Enron was rated investment grade by all three of Moody's, S&P and Fitch right up until 4 days before it ceased to exist entirely.

Nobody should ever take these organisations seriously.

by Haven | 15th Mar 23, 9:45am 1678826735

Would be difficult to maintain business with the corporate types if KPMG etc repeatedly told them things financially were horrible… Much better to give them a pass mark and hope for business next financial year.

by chebbo | 15th Mar 23, 10:02am 1678827744

Just consider the power they have. With the stroke of a pen they can wipe out (or create) millions of dollars of shareholder value, depending on the rating they give. They can essentially hold publicly-traded corporations to ransom.

They only have this power because people believe them though, although I seriously can't understand why.

by dumbthoughts | 15th Mar 23, 9:57am 1678827454

And don't forget the late Arthur Andersen signing off all the books for Enron (and helping concoct some of the more 'creative' accounting schemes)

As you say, these organisations exist to exchange a veneer of respectability and trust (owing to their perceived reputations) and prop up an increasingly compromised system, in exchange for a slice of the action as massive invoices paid back to them.

Same goes for the big consulting firms. They aren't solving problems any better than smaller players or internal teams - if anything the output that I've seen from some projects has been truly pitiful relative to the enormous costs - but what the client is really paying for is the 'ass coverage' aspect and political capital

by bw | 15th Mar 23, 7:54am 1678820082

Entire US banking system downgraded. Rapid deterioration' darkens Moody’s outlook for US banking system. The outlook for the US banking system has been downgraded to "negative" by Moody’s. The credit rating's agency said there had been a "rapid deterioration in the operating environment.

by lowercase capitalist | 15th Mar 23, 8:09am 1678820985

Downgrading the banking system's rating now seems like shutting the gate after the cows have escaped.

by IT GUY | 15th Mar 23, 8:11am 1678821087

What if you are an unsecured bond holder or stock holder in a smaller regional bank? Well, the government just said you are getting zero if your bank collapses. So, do you really want to be a stock or bond holder in a small regional bank? Probably not. What does that mean?
The Fed just guaranteed all US Debt at 100% of par value. What are the implications of this incredible Put in the market? If the market decides to test the Fed, they may end up printing boat loads of money.

by murray86 | 15th Mar 23, 9:22am 1678825339

"The Fed just guaranteed all US Debt at 100% of par value." Did they? I understand they just guaranteed all "Depositors funds" at 100%. That's a long way from "all debt". But more, they've said the banks will pay for it, not the Fed.

by Galloleous | 15th Mar 23, 9:27am 1678825631

Yes they said they would buy collateral valued at par.

https://twitter.com/CaitlinLong_/status/1635114825125883905?s=20

THE BIG 4 US BANKS just got a $210bn Fed bailout. How? Fed's new BTFP facility allows banks to borrow against the negative collateral value shown on the graph *AT PAR* instead of at market value(!!!). The big 4 have $210bn of these losses...

https://twitter.com/CaitlinLong_/status/1635110620864581633?s=20

by murray86 | 15th Mar 23, 10:05am 1678827904

So they really haven't learned much at all have they? What will it take?

Caitlin is right, it is HUGE! I suspect some serious fallout will be possible from this.

by murray86 | 15th Mar 23, 11:06am 1678831613

Question Galleous; could this be over reach by the Fed? As I indicated Biden said something quite different, so could the Fed be pushing it further?

by Galloleous | 16th Mar 23, 8:25am 1678908334

Well considering Biden is a dithering fool and the Fed is supposed to be independent, it is possible that one hand doesnt know what the other is doing.

They shouldnt have hiked rates so far so fast in the first place. Shit broke at 2.5% in 2019 and we have added 5T in debt since then and the fed thought they could get away with 5% in a year!!

by Snow | 15th Mar 23, 7:59am 1678820367

https://twitter.com/WallStreetSilv/status/1635314294710759424

CREDIT SUISSE’S DEFAULT SWAPS HIT NEW ALL TIME HIGH. Insurance to protect against default on their bonds is skyrocketing.

by Snow | 15th Mar 23, 8:02am 1678820534

Anyone bank with Rabobank? Considering swapping away from ANZ for higher on-call and deposit rates. Will have a CC and non-Ag business account as well.

by bw | 15th Mar 23, 8:14am 1678821283

With the way things are looking, do you want your money with a bank that substantially backs financial engineering and property mortgages, or one that backs farmers producing the food we all have to have?

by Baywatch | 15th Mar 23, 8:19am 1678821574

I thought we exported all the food farmers produce..and leave us with all the overpriced 2nds?

by Snow | 15th Mar 23, 8:20am 1678821614

There's also that in my rationale for looking at switching away from one of the 4. Just after any good, bad or otherwise reviews from people that use Rabo. (Or any other "non mainstream" bank).

by bw | 15th Mar 23, 8:29am 1678822173

Never had a problem of any kind in 15(?) years - except the battery on their Digipass ran out once in that time.

by Galloleous | 15th Mar 23, 9:22am 1678825372

Have used them for Term Deposits at various times over the last 10 years. Easy and no problems.

by nigelh | 15th Mar 23, 9:33am 1678826003

Administratively inconvenient but have a bob both ways by using both. As far as I'm aware Rabo NZ do not have the backing of Rabo Netherlands. For what its worth they do have a AA- S&P credit rating. I prefer them to Heartland, BBB I think and about a year old. A lot has happened in a year.

by lonewolfnz | 15th Mar 23, 8:05am 1678820718

Buying more gold (GTX) and bitcoin this morning. Although the later feels a bit hot, even at $500 down from the price mentioned above

Some my "AI" coins up over 33% today due to release of new chatgpt thing lol

by HouseMouse | 15th Mar 23, 8:07am 1678820874

Just a reminder for those who gloat about pay rises largely cancelling out inflation - 35% of workers have not had a pay rise over the past year:

https://i.stuff.co.nz/business/money/300829967/minimum-wage-too-close-f…

by HW2 | 15th Mar 23, 8:09am 1678820998

That would probably include teachers who only get to renegotiate their collective agreement every three years.

Badly timed to coincide with election year. Though it gives the teachers more leverage to cause mayhem

by GV 27 | 15th Mar 23, 8:11am 1678821087

How many are getting actual real increases once the lack of indexation is taken into account?

by IT GUY | 15th Mar 23, 8:16am 1678821392

Labour will move the tax bands around in the budget for sure and introduce the 45c in the dollar top band that Mike Hosking nailed him on breakfast show the other day. The 33% band starts at 70k, who thinks that is well paid anymore........ My son is making that straight out of uni.

by ShoreThing | 15th Mar 23, 9:22am 1678825368

The 33% band starts at 70k, who thinks that is well paid anymore

The Labour government apparently, because when they did the Cost of Living payments they would rather give the money to people who don't even live in this country anymore than give it to someone who makes 70,001 a year and has to suffer the consequences of their policies.

by GV 27 | 15th Mar 23, 9:45am 1678826721

That'd be the same Labour government who appointed a bloke to run their tax working group report into a Capital Gains Tax who thought taxing NZers on income at 39c in the dollar for everything over $60,000 and leaving capital gains on investment property functionally unpoliced was perfectly fine?

What a turn-up for the books.

by ShoreThing | 15th Mar 23, 9:56am 1678827376

The very same. The disembodied voice of Michael Cullen can still be heard shouting 'Rich pricks!' every time they pull these stunts.

by Silvi | 15th Mar 23, 8:31am 1678822315

Pay rises. Our Nursing daughter who in a Senior role received her pay rise last week. Her rise is dollar for dollar what her mother and father will get on April 1st in superann. Staff Nurses are, with penalty pay earning forty thousand more than Senior staff. What was not said in any reporting is the Senior staff working in a salaried role do not get the weekend and nighttime penalty rates Staff do.

by IT GUY | 15th Mar 23, 8:36am 1678822619

We will end up like the NHS...... You will see a lot of staff through temp agencies.

by malamah | 15th Mar 23, 8:53am 1678823631

Yes it will get very expensive very quickly

by VictimOfOCR | 15th Mar 23, 8:15am 1678821307

BTC is off to a fine start this week. I’m trying to make sense of the most recent move but best I can gather it is on optimism that we’re near the top of the Fed hiking cycle.

It hasn’t plumbed the lows I’ve been hanging out for (yet) so I’ve not accumulated as much as I’d intended (yet) but I’m also not entirely convinced by the recent rally. Even if the cycle low I’ve prepared for doesn’t happen, I’m satisfied with how I’ve rebalanced during the past 2 years. Currently 65% BTC, 25% ETH, 10% collection of alt coins I haven’t found the opportunity to exit out of.

Currently I’m watching to see if BTC holds above 25k for at least a month. If it does I’ll consider deploying what I had set aside to sweep up the lows. Also watching to see if the Fed confirms the optimism and what CPI does next. Market expectations for future hikes have shifted dramatically over the past week.

by Galloleous | 15th Mar 23, 9:34am 1678826075

Yes to the fact that QT has peaked and it responds well to the increase or decrease in liquidity/ currency units.

Also Bitcoin just worked all weekend, no interruptions to block creation, transaction or alterations to the amount of Bitcoin being created on a set schedule. Perhaps some people woke up to the fundamental value of an incorruptible network with no counter party risk...

https://twitter.com/saylor/status/1635729949415084032?s=20

by GV 27 | 15th Mar 23, 10:15am 1678828530

It's the on-ramps and off-ramps that bother me. I've heard stories anecdotally about a major crypto platform looking for local banking partners and having doors slammed in their faces.

by Baywatch | 15th Mar 23, 11:11am 1678831915

I wonder what happened to Carlos....??

by dumbthoughts | 15th Mar 23, 11:53am 1678834422

Got drafted by Putin maybe? He was a big fan, after all.

by HouseMouse | 15th Mar 23, 8:19am 1678821560

S & P Index surged early but has lost most of its gains across the day.

by bw | 15th Mar 23, 8:34am 1678822445

Watching the US markets this morning is like watching a passenger that's fallen from a cruise liner; treading water and struggling to avoid drowning and hoping to stay afloat until the ship gets back in time to rescue them.

Outside of the problems of Credit Suisse’s own creation, (the market) is also having to contend with growing fears of European banking contagion.

by IT GUY | 15th Mar 23, 8:38am 1678822704

Yeah we will see deposit flow from the PIGS to German banks for sure. Not sure the Germans are ready to bail out the PIGS again.

by HouseMouse | 15th Mar 23, 9:39am 1678826366

A real yo-yo

back up again

by Audaxes | 15th Mar 23, 8:29am 1678822182

Silicon Valley Bank shows the perils of regulators fighting the last war

Worries have focused on credit and liquidity risks rather than interest rates

by Audaxes | 15th Mar 23, 8:35am 1678822533

What is so frustrating with the pushback from the administration and others on “bailouts” isn’t about SVB necessarily is the fact that this is a bailout of the other banks that should have failed this week because they were poorly run. /1 Quote Tweet Victoria Guida @vtg2 Marr 14

Bailout is one of the words where, though it can obviously be fairly applied here, is so broad as to not be very illuminating. When we talked about bank bailouts in 2008, those moves prevented banks from failing. Here, the two banks in question are still dead. twitter.com/vtg2/status/16…Link

by Audaxes | 15th Mar 23, 9:14am 1678824858

American regulators are uncovering some very questionable practices at the banks they have closed or taken over. But the crisis seems to have passed.

And created more questionable practices:

Propping Up Asset Prices with New Money

The first prong of the bailout plan is to use extremely low-cost loans to shovel more money at banks in order to make them look more financially sound. The idea here is to head off depositor panics over uninsured deposits before they start. The first indication that this scheme is a bailout comes from the text of the press release on the creation of the BTFP. It states that the new program will be offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities [MBS], and other qualifying assets as collateral. These assets will be valued at par. The BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution’s need to quickly sell those securities in times of stress.

The key phrase is “These assets will be valued at par.” That’s important because these banks are facing huge unrealized losses, many stemming from losses on assets whose market prices plummeted as interest rates rose. Part of the reason these banks are in trouble is because their assets are no longer worth anywhere near par value in the marketplace:

Yet, the Fed has decided to simply declare that banks' assets sit at par value and thus far more valuable than is really the case. It will let banks use these assets as collateral at the imaginary (higher) prices.

by Audaxes | 15th Mar 23, 9:39am 1678826380

Of particular importance is "Bagehot's Dictum" that in times of financial crisis central banks should lend freely to solvent depository institutions, yet only against sound collateral and at interest rates high enough to dissuade those borrowers that are not genuinely in need.

by HW2 | 15th Mar 23, 10:18am 1678828717

The US 10 year T bill is now dow 10 percent from this time last week.

I wonder what that will mean for longer term interest rates over here.

by bw | 15th Mar 23, 10:53am 1678830825

They will soar, and not too far down the track.

Why? Because as the noose is loosened on present day debt costs, to handle The Systemic Banking Emergency, what will those of us with free cashflow do as the return on funds falls? Spend it, and borrow as much more as we can to do so.(Have a look at any Inflation rate data e.g. The USA last night, to see why.) And what will that do to prices? Make them rise. And what will that do to the CPI? Make it rise. So what will then happen to the OCR.....

by malamah | 15th Mar 23, 10:53am 1678830818

And our small housing market caught right in the middle. Significant equity vaporised severely limiting future borrowing power regardless of future rates. My only hope is we can leave non-productive speculation in the rear view mirror. I recently returned to NZ from a month in Europe - first thing I saw was a massive billboard with two REA. They're everywhere at the moment, the advertising spend must be significant. But also since I've been back I've been concerned with just how much advertising and reporting and analysis we give to the housing market. It's all we talk about, this fallacy that we can continue to burden the next generation with debt at a rate outpacing productivity. Acting as if these aren't homes people deserve to live in. When to buy your next investment property, will national save us all from tenant tax, when will we be back to BAU tax rinse and repeat?

by bw | 15th Mar 23, 10:56am 1678830988

Spot on. And if the RBNZ has any long term sense, it will ignore current turmoil and press upwards with the OCR in April.

by HW2 | 15th Mar 23, 11:26am 1678832794

Heres a question. Should I approve a tenancy agreement for tenant working in the construction industry.

Or is it too risky they will be out of a job and not paying rent

What if they were in retail

by Baywatch | 15th Mar 23, 11:39am 1678833595

Sell it now before it's price decreases even more. The construction worker probably heading overseas shortly.

by malamah | 15th Mar 23, 11:40am 1678833647

We're picking and choosing tenants based on their industry now? Put it in the listing. "Two professional couples needed to fuel my lifestyle. Builders and property investors, pets, kids, those affected by floods, breathers and anybody making less than $200k need not apply. I made a boo boo on my leverage in 2021 lol."

by HW2 | 15th Mar 23, 11:51am 1678834301

I dont need or want empathy. Just as well

by Baywatch | 15th Mar 23, 2:38pm 1678844308

Pathos perhaps?

by Nzdan | 15th Mar 23, 12:37pm 1678837052

Also don't forget to lodge the bond.

by Beanie | 15th Mar 23, 11:53am 1678834407

Depends what they are retailing from your house..the oldest profession maybe?