Here's our summary of key economic events overnight that affect New Zealand with news of deliberate chaos being constructed in Washington DC with a much higher prospect of a US Federal Government shutdown likely. Authorised funding expires later today / Friday, US time. Financial risks are sharply elevated today, and markets are pricing these in.
Elsewhere, US jobless claims fell sharply last week and by more than can be accounted for by seasonal factors. There are now a bit less than 1.9 mln people on these benefits.
The PhillyFed survey of factories in America's traditional rust belt turned very negative, the worst result since April 2023. Soft demand was behind this shift. Optimism about the future took a hit too.
The Kansas City Fed's equivalent survey in its region wasn't so negative, but it wasn't positive either. Optimism was a bit better there however.
American existing home sales in November rose, but to be fair it is still stuck in the very low range it has had post-pandemic which is even lower than the post-GFC range, and back to levels first seen in 1995. So the November rise in that perspective is kind of irrelevant, no matter what the industry peak body says.
The US Conference Board leading index tracking rose in November. Higher building permits, high equity prices, rising average hours worked in manufacturing, and fewer initial jobless claims boosted the November result. But the December result will no doubt take a hit from the current Washington shenanigans.
The final estimate for US Q3-2024 GDP raised the expansion to +3.1% and extending the good run they have had since mid-2022. The US economy delivered US$29.4 tln of economic activity in the past year, with the expansion of +US$1.4 tln and the most ever. And that describes what is at risk from bad policy.
Elsewhere there were many central bank rate reviews.
In Japan, the Bank of Japan held its key short-term interest rate unchanged at 0.25%, keeping it at the highest level since 2008. That was what financial markets expected. But the vote was split 8-1, with one board member wanting a +25 bps increase. Essentially they are waiting to see how destabilising the incoming American Administration will be. But the bank boss seems to have turned dovish in the circumstances, and that turn moved markets.
In Taiwan, they kept their policy rate unchanged at 2%
In the Philippines, they cut their rate by -25 bps to 5.75%.
In Sweden, they cut by -25 bps to 2.5%.
In Norway, they held at 4.5%.
In England, they held unchanged at 4.75% with a split 6:3 vote with the dissenters wanting a cut. This is a pause as inflation starts to rise there again.
In something of a surprise, Australian inflation expectations rose to 4.2% in December, ending their encouraging falls that started in September. It is not a result either the RBA or the Australian Treasury would have wanted.
Container freight rates rose +8% last week but to be fair that was only because of a +26% rise in the China-to-USWC route and a +17% rise in China-to-New York as traders raced to get ahead of the impending tariff threat. Other routes saw small declines. Bulk cargo rates fell another -7% last week to be less than half what they were a year ago and back to levels last seen in July 2023.
Many mineral commodities are retreating in price in expectation 2025 will be tough, with copper down -2%.
The UST 10yr yield is now at just on 4.59%, up a very sharp +19 bps from this time yesterday as markets digested the Fed's move and the deliberate mess being created by the incoming President. The key 2-10 yield curve is more positive, now by +27 bps. Their 1-5 curve inversion is +1 bps positive. And their 3 mth-10yr curve is sharply more positive at +24 bps. The Australian 10 year bond yield starts today at 4.49% and up +15 bps. The China 10 year bond rate is now at 1.76% and up +2 bps from yesterday. The NZ Government 10 year bond rate is now at 4.58% and up +5 bps.
Wall Street has opened its Thursday session with a +0.4% rise on the S&P500. Overnight European markets were all down about -1.2%. Yesterday, Tokyo closed down -0.7%. Hong Kong closed down -0.6%. Shanghai was down -0.4% as was Singapore. The ASX200 ended its Thursday session down a large -1.7%, and the NZX50 ended with a -0.9% retreat.
The price of gold will start today at US$2592/oz and down -US$42 from yesterday.
Oil prices are down -US$2.50 to be just on US$69.50/bbl in the US while the international Brent price is now just under US$73.
The Kiwi dollar starts today just on 56.5 USc and down -60 bps from yesterday. Against the Aussie we are down -40 bps to 90.3 AUc. Against the euro we are also down -10 bps to 54.5 euro cents. That all means our TWI-5 starts today at just on 67.1 to be down another -25 bps from yesterday at this time.
The bitcoin price starts today at US$100,994 and down -3.1% from this time yesterday. Volatility over the past 24 hours has been high at +/- 3.1%.
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102 Comments
Cuts are more likely IMHO. Look at government debt-to-gdp rates globally. Virtually every major economy is >100% in that ratio and the interest payments are creating doomloops that are leading to more and more dire fiscal situations. Central banks have to cut to keep the government's "solvent" but this will trigger inflation.
This financial crisis/currency crisis is staring us directly in the face but despite all the evidence and historical precedent with fiat currencies "this time is different". Every single historical experiment with fiat currencies has ended in the exact same way: excessive money creation, inflation -> hyperinflation -> return to a sounder form of money. But supposedly this time will be different despite even government stats showing staggering rates of inflation since 1971.
2025 is going to be a big year for crypto, even bigger than 2024 was. Plan accordingly.
Assumes crypto isn't part of the same debt fueled asset over-valuation that's prolific almost everywhere else.
When bellies start rumbling things can start to give.
It'll be a good test anyway. Some interesting mirrors of 100 years ago, truckloads of amateur investors all clamoring in thinking the only way is always up.
If we are talking Bitcoin, easy way to tell it isn't is to denominate prices in BTC. So instead of measuring price growth overtime in fiat of choice, use BTC (or gold). Once you do that it becomes clear that we are facing a financial/currency crisis, not a resource crisis as many seem to believe.
Check out that site and you'll see what I mean. The problem is the fiat currency. They are following the literal same trajectory as every other time fiat has been tried: increasing rates of inflation due to excessive money creation, then rejection of the currency.
So instead of measuring price growth overtime in fiat of choice, use BTC (or gold).
Bitcoin doesn't have a very long history. If we follow the price of gold over longer periods it has moments where it's the store of wealth du jour, of high value, then long periods of stagnation. As Bitcoin is like gold, in that it doesn't really do anything (it'll never be widely used as money), it'll fall in and out of favour over time.
About the best case I've heard for future value of Bitcoin is that the market cap of it is still very small with room to grow.
So Bitcoin is competing with Gold?
I will defer to some heads of the federal reserve to show the implications of this:
From 2014:
https://goldbroker.com/news/alan-greenspan-thinks-gold-currently-good-i…
GREENSPAN: Economists are usually perfect in equivocating. In this case I didn't equivocate. Look, remember what we're looking at. Gold is a currency. It is still by all evidences the premier currency where no fiat currency, including the dollar, can match it.
From 2024:
https://www.cnbc.com/2024/12/05/what-fed-chief-powell-said-about-crypto…
“People use bitcoin as a speculative asset,” Powell told CNBC’s Andrew Ross Sorkin during the New York Times’ DealBook Summit. “It’s just like gold, only it’s virtual, it’s digital. People are not using it as a form of payment or as a store of value. It’s highly volatile. It’s not a competitor for the dollar, it’s really a competitor for gold.”
So Greenspan thinks gold is a premier currency that no currency can match. And Powell thinks Bitcoin is in competition with Gold.
I'll let the reader's reach their own conclusions on where this is all going.
Oh right, I'm very familiar with those.
Anyway I'm tapping out, I've said enough for curious readers of these forums to look a little deeper. You seem happy with your understanding and approach to the sector, hope that remains true whichever way things end up in the future.
Two days ago at a kid's picnic - the house wife next to me asked if I knew about digital assets.
Apparently they're the thing we should be investing in.
I was left wondering if crypto will actually take over, or if there were parallels towards a reported taxi conversation 100 years ago.
When crypto is purchased the cash doesn't disappear, it goes into someone else's pocket.
Whose pocket/s and what a great way to hoover up cash?
Even gold sells off when the SHTF.
How much might BTC collapse as 'investors' require real cash in an economic meltdown?
I'd be keeping a closer eye on the whales looking to buy in, personally.
Biggest asset manager in the world's thoughts: https://www.blackrock.com/institutions/en-zz/insights/portfolio-design/…
Advises a similar allocation as would be put in one of the MAG 7.
Run the numbers on that and then calculate price impact on BTC.
You learn a heap from following what is happening - and why - in other economies. I highly recommend Kiws do lots more of this.
All too often it is just the US, Australia, NZ and we're all following the same neoliberal playbook. Many other countries aren't. And they're doing far better than NZ.
Most of the developed ones are still struggling to adjust to globalisation and maturation. Seeing the world, over many years, above just reading about it, and many of the problems are seemingly universal.
The ones coming ahead in the largest leaps are doing so from a very low base. Meanwhile, in many of the worlds most affluent cities, rising decay and poverty.
The thing about a generalisations, is they're generally true (the clue is in the term). That way, we can establish rules and trends.
If the basis for most of your views rests on exceptional or extenuating circumstances, then you run the risk of delving into magical thinking.
But that's cool, it's super rare you ever flesh anything you say out. These many different countries doing it differently (with accompanying success) can just be your little secret.
I bought a new phone off Amazon AU at Black Friday with a delivery date for the end of Nov and somehow they oversold them and it still hasn't shipped, despite showing back in stock a week ago, even promising delivery by 24th. It's the first time buying from Amazon for 15 years that I've had this happen, and their customer support just tells me it's normal to face a 2 month delivery delay on international orders! They're now claiming it'll come by the end of Dec, but it still hasn't shipped.
Aliexpress OTOH has delivered two orders in that time. Go figure.
AliExpress is mind blowing with their shipping. If you order 2 things close together they internally ship one to meet the other and put both in the same bag and ship. NZ Post on the other hand, their redirection goes down on the Website so you ring them and spend 5 minutes explaining the new address, they give you a case number then still send it to the old address where it gets lost.
Yeah Aliexpress has had to pivot massively on their shipping the last couple of years. I think their UPU deal to basically drop things on countries for free got canned and they were left paying more or less commercial rates to deliver things. That lead to the "Choice" and "Bundle" stuff we see now and combined shipping. I think sometimes they actually put it on a plane to NZ and consolidate them in Auckland. Often you get an outer parcel filled with inner parcels, some of those inner parcels have sub-inner parcels. The kids love unwrapping all the layers.
The way China works, different areas often produce different goods, like electronics down south, machinery and tooling up north, clothing somewhere in the middle. It would be really inefficient to internally ship those things to consolidate them, so I suspect they just go to the nearest major airport and are dropped in a can heading for NZ, and they work out the rest on the other side.
Oh joy, the two days late aliexpress tracking is now showing 'shipment cancelled'. Now i have to spend the weekend getting a new present locally for the boy. I shall never trust aliexpress with anything time critcall again. I've also got two shipments that are not time critcal that are well overdue. these $2 late delivery coupons are starting to add up.
It's great so long as you don't think where they've come from and how they're so cheap.
https://youtu.be/qnu_UcaRZv8?si=GraSIk_MCozgUbtJ
We're all rich at the sake of armies of whipped demons. But just tell yourself you're elevating people from poverty and it'll be fine.
Yeah it's ugly. But the problem I have is you can buy the exact same product from Temu or The Warehouse, just The Warehouse are charging 100x more and wrap it in different packaging. It still came from the same factory staffed by the same miserable workers.
I get that the bigger retailers can audit their supply chains to weed out the worst of it, but ultimately it still all comes from China, and there's only so many factories making 10c screwdrivers that follow good employment practices.
Out of sight, out of mind.
But if you saw how different animals are slaughtered for your plate, things vary. Most of our beef stands in a queue waiting to have their throats slit and bleed out, the smell carries to the rest. Vs a cow/bull having a happy life in a pasture, only for one day to have the lights go out, by complete surprise.
The sudden drop of the $ really does stress a point that i and a few others have been making with respect to national resilience in recent times.
A government plan to revitalise the manufacturing sector, increasing national resilience and reducing reliance on imports is increasingly important. Reshaping the taxation model will necessarily be a requirement to achieve this too.
There are many nay sayers, and it will initially be expensive, but the returns are down stream, not immediate. Successive governments have screwed the people of this country.
We have run current account deficits every year since 1971 - with the 2000s and 2020s (so far) very high. These deficits reduce our monetary sovereignty and force us to increase Govt and/or private debt levels to keep the economy going. Getting the current account closer to balance will be a tough job - requiring us (most obviously) to reduce oil / fuel imports considerably and slow the flow of fees, charges, and dividends offshore. Remember, we talk a lot about importing / exporting logs, milk, and travel etc, but what keeps us consistently in the red with the rest of the world is actually primary income flows - $6bn of rent to Aussie banks for example. When you look at the data it is clear that offshore asset owners are basically sucking rent out of the country - and we pay that rent mostly by going deeper into debt to buy houses.
I would like to wish all here a Merry Christmas and Happy New Year.
I would like to thank the team at Interest .co for their work, and extend that thanks to contributors from outside, especially Chris Trotter ( I look forward to his articles and the ensuing discussions the most).
My greatest appreciation though goes to the contributors to the threads on each article. Those discussions are always educational, often amusing and challenging and always fun!
So if you're having a break, enjoy, be safe, be well and come back refreshed. If not don't work too hard.
Thanks team!
Ma te rongo, ka mōhio
Ma te mōhio, ka marama
Ma te marama, ka matau
Ma te matau, ka ora
How much do investors drive house prices? | RNZ News
Confirmation of what many have figured out already, but with data.
The research highlighted that there was a role for the banking sector to place more emphasis on objective analysis and valuations rather than a reliance on past house prices and algorithm-based valuations in a rising market
Great read thanks for the link.... if we had a CGT it would knock prices as the 1/3 of potential CG you would lose as sale, increases the investment risk and decreases the overall returns likely.
Prices have to fall a long way to be yield profitable vs CG profitable but cash flow negitive.
I was thinking about this last night when I saw a comment elsewhere about how a CGT would totally ruin the financial analysis of investors predicting their retirement funds. I had a think about it, and I can't see how. I'm 30 years out from retirement and have a few properties, but I couldn't say I've done an analysis on what they'll contribute to my retirement in 30 or 40 years (if they're still standing). They could have gone up in value by 3x, or 10x, or hyperinflation could've seen them shoot up 1000x. A CGT doesn't muddy the waters all that much when we're talking about uncertainty that big. It might take my 10x gain down to 7x, but that's still better than 3x, and a profit is a profit.
Sure different for flippers and short-term speculators, though we don't really need to encourage more of that kind of investing in this country anyway.
According to what residential property investors tell the IRD - they're only in it for the taxable rental income and the un-taxed capital gains never enter their thinking. (Especially true of land-bwankers who have hovels on large chunks of land but are there just for the rental income. Yeah right!)
Need a Tui moment?
Sarina Gibbon, general manager of the Auckland Property Investors Association, said White's research seemed to be describing speculators rather than investors.
"A speculator buys on value potential hoping that the natural market forces will do most of the heavy lifting so that he can sell at a profit. An investor buys on a balance of value and yield, knowing that what makes the property worth their while is the regular rent return.
"As to investors (or speculators) being optimistic and paying more, I would say, in my near 20 years in the industry, I've never once heard of a single investor looking to pay more for a property."
Best laugh I've had for ages. Why?
1. Without 'natural market forces' driving un-taxed capital gains - far fewer 'investors' would be buying houses and the prices would be far lower.
2. Sabrina has clearly never been to any auctions when she says, "I've never once heard of a single investor looking to pay more for a property." I've talked to / overheard 'investors' go over their pre-agreed maximum prices at auctions. Some even have spreadsheets on their phones that show their ROI falling as the bid higher and higher.
If anyone wants a copy, you can email David at D.J.White@massey.ac.nz.
We are simply not going to be able to cut more than another 50bp max. The US 10y up at 4.59% is one bad day from a break out higher and the weak Kiwi is going to push up inflation here significantly. We are firmly in stagflation territory.
Otherwise, Meri Kirihimete e hoa ma.
If I were a gambling man, my punt is on economy deteriorating in 2025 but just enough recovery later by the start/middle of 2026 that this plus the spectre of Greens and TPM calling the shots on Labour will be just enough to secure a 2nd term.
Yes current govt is 'coalition of chaos' but wait until Greens/TPM start dropping all manner of hare-brained social and or extreme "envy tax" policies in the run up to the next election, which will be a put off to middle NZ. They won't be able to help themselves in declaring war on the modern day kulaks (anybody with a couple of dollars to rub together) and this will backfire on Labour, who will be tarnished with the same brush.
Then again I have never been a good gambler ...
My thanks to DC and team for another great year on a great site. Astonishing achievement compared to the alternatives. (I can't imagine the hours David puts in)
As for the common taters, even the ones that make me spit me coffee. Have a good time in the next little while.
Even Roger Douglas thinks the austerity has gone too far:
https://www.nzherald.co.nz/nz/politics/roger-douglas-disappointed-with-…
No they haven't they have stopped existing projects dead in their tracks. This was posted out to you yesterday and you are choosing to ignore facts.
If Roger Douglas thinks this is extreme, just think about what that means for a second. He's also pointing out that ACT is no longer what it said it was, it is a special interests party with a libertarian slant.
Meanwhile, Australia estimates that tax collections on alcohol and cigarettes will drop by $12.5B over the next 4 years due to the increase in illegal cigarettes and bootlegging.
The most recent Tax Gap data from the Australian Tax Office, which estimates the difference between the expected revenue and the revenue it would theoretically get “if every taxpayer was fully compliant with tax law”, put the net tax gap for tobacco in 2022-23 at $2.7 billion.
The ATO is detecting a similar pattern with alcohol, estimating in the same year a loss of $800 million due to bootlegging.
“It is plausible that Australia’s high tax settings have created opportunities for compliant businesses to be undercut by illegal, dangerous and untaxed products,” said Alistair Coe, the executive director of Alcohol Beverages Australia.
Puts the recent backdown on cigarettes in NZ in perspective. We dont need to be giving the gangs any more business opportunities.
Let’s start with good stuff. interest.co.nz is a valuable, if not invaluable, source of financial information that is currently free.
Now onto the bad stuff. Mr Chaston has a near- irrational bias against Donald Trump.
The House Appropriations Bill cannot pass in its current form because it contains too much expenditure on unnecessary items. Regrettably, it also contains necessary items.
https://www.nytimes.com/2024/12/18/us/politics/spending-bill-explainer…
This is a complicated and fraught situation that wouldn’t arise if: unnecessary items were not in the bill.
America had a competent, functional President.
It doesn’t boil down to blame of one person.
Its almost like Trump ran off with your wife or something
100% agree. But I guess it’s David’s prerogative. I also don’t like it, even though I dislike Trump. He’s an easy, distant target. We also have a lot of questionable politicians doing questionable things, and our economy is a shambles, but somehow they don’t get called out in the same personal way.
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