Top 10 at 10: More gold from jewellery than mines; The Rabbit Whisperer; Soaring US bank profits; Dilbert
15th Apr 10, 1:28pm
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Here are my Top 10 links from around the Internet at 10 past 1. I welcome your additions and comments below or please send suggestions Friday’s Top 10 at 10 past 1pm. bernard.hickey@interest.co.nz We are a snout free zone.
1. 'They're back!' - Bank reporting season has started again in the United States and the bankers are making a killing, thanks to be able to borrow from the US Federal Reserve at a virtual zero % interest rate and then lending it to the government at 3-4%. Hard, hard work. Paul Kedrosky points this out. Glad I'm not an American taxpayer, but heaven help us all when all that printed money starts venturing farther afield in search of higher yield. Low US rates fed the global property boom from 2001 to 2008.
Demonstrating that even the worst bankers struggle to find ways to lose money when short rates are zero, the yield curve is steep, and credit is tight, check the following semi-worrisome graph of surging bank profits.
2. Deleveraging 101 - Brian Fallow has a nice wrap-up column in the NZHerald on the fiscal challenges facing governments around the world and explains what this means: slower growth and higher interest rates. Worth a read.
Governments across the developed world face an unappealing set of options: cut spending, raise the retirement age, increase taxes or borrow more and more, driving up interest rates and crowding out private sector borrowers in the process. It is a beggar's crossroads, that leads to calamity - or at least profound unpopularity - in every direction. It is a recipe for weaker growth and higher interest rates across what is still the bulk of the global economy. It will inevitably have spillover effects on this country.3. 'We're all in the same boat' - Edmund Conway at the Telegraph has a nice piece explaining how Greece's sovereign debt woes are not that much worse than much of the rest of the developed world. A couple of the charts are startling, particularly the ones showing the United States and Japan having to roll over enormous amounts in the next year. Higher interest rates anyone? HT Andrew Wilson via email.
Essentially, if you’re having to roll over lots of your debt each year, as you will when it expires so often (and because you don’t actually want to pay it back when it expires) it means you have to issue a hell of a lot more debt at the day’s going interest rate. Which in turn leaves you far more vulnerable to a sudden sharp increase in interest rates.
“The most chilling similarity between the Greeks and everyone else isn’t in the charts above showing that their various debt metrics are in the same ballpark, it’s in the realisation that we too are subject to the same iron-clad laws of budget sustainability and that we too are as helplessly vulnerable to any reassessment of sovereign risk by the famously fickle Mr Market.” In the end, all Western nations face a long-term dilemma (which has been the case since before the crisis, but is more front-and-centre of everyone’s minds now). Over the past 50 years we have committed ourselves to massive welfare states which our economies are simply not generating enough cash to finance. This final chart sums up the problem.
4. 'The debate has legs' - Steve Keen's 'walk of shame' to Mt Kosciuszko is starting to get wider attention in Australia for the issue of an over-valued and unsustainable housing market. Excellent. The Sydney Morning Herald has picked up on it.
"To me the irony is I’m marching uphill and house prices will start marching down because as you’ve seen in the lending figures the trend seems to be very strong,” he says. Homes loans slumped for the fifth consecutive month in February, dropping 1.8 per cent. “Mortgage debt is now falling. And with falling mortgage debt ultimately you’ll get falling house prices.” The professor of economics and finance at the University of Western Sydney warns that the second part of the bet made with Robertson - that home prices will sink by 40 per cent within 15 years - remains live.[caption id="" align="aligncenter" width="400" caption="http://www.smh.com.au/business/keens-long-march-to-lower-house-prices-2…"]
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5. Global bank tax getting traction - This idea of a levy on banks may actually have legs too. You know something might happen when serious people start protesting about it. Reuters has the story here. It also appears the IMF will propose something next week.
European countries believe U.S. plans for a bank levy to cover the costs of the American financial bailout are flawed and would discriminate against foreign banks, according to a report seen by Reuters. The internal document, written by senior finance ministry officials from the European Union's 27 countries, threatens to open a rift between Brussels and Washington, who have already clashed over EU plans to tighten control of hedge funds.6. 'End of cheap credit' - This broad New York Times piece on the end of cheap credit is another way of talking about the power of de-leveraging. Double and triple dips should be expected.
The shift is sure to come as a shock to consumers whose spending habits were shaped by a historic 30-year decline in the cost of borrowing. “Americans have assumed the roller coaster goes one way,” said Bill Gross, whose investment firm, Pimco, has taken part in a broad sell-off of government debt, which has pushed up interest rates. “It’s been a great thrill as rates descended, but now we face an extended climb.” The impact of higher rates is likely to be felt first in the housing market, which has only recently begun to rebound from a deep slump. The rate for a 30-year fixed rate mortgage has risen half a point since December, hitting 5.31 last week, the highest level since last summer.7. Pawnbrokers more important than gold miners - This Timesonline piece picks up on a curious fact, driven by the high price of gold. I've noticed these gold buying kiosks lately in shopping malls around Auckland. Others seen anything similar?
The flow of scrap gold was highest in the first quarter of last year and was so great that for the first time more jewellery was being scrapped than made. There was also more gold being scrapped than was produced at all the world’s mines during that period. Philip Klapwijk, the chairman of (gold analyst) GFMS, said: “For the world to be scrapping more jewellery than it was making shows that the market was under extreme stress conditions last year caused by the financial crisis.” The price of gold could hit $1,300 an ounce this year and trigger another bout of second-hand jewellery sales. GFMS, the precious metals analyst, predicted yesterday that gold would rise in the second half of this year as investors seek a safe haven from inflation.8. Bubble, bubble, toil and trouble - These two inflation-adjusted charts show just how much of a bubble there was in America's housing market. The first one is from 2006 and Robert Schiller. It goes back to 1890. Click on it for a bigger version.
Joe Sixpack didn’t have access to real housing price data. But by 2004 or 2005, the Fed, Fannie, Freddie, the big banks and everyone else who had an economist on hand should have known that we were in an unprecedented bubble.
If you’ve got a bugged bunny who’s getting a bit bothered by a trip to the vet, you need the Hopnotist. Meet Cliff Penrose, who claims to be Britain’s only rabbit whisperer. He is able to hypnotise bunnies by applying pressure and massaging certain parts of the body, including the belly, which relaxes them. Mr Penrose then bows to the rabbit by lowering his head so it does not feel threatened, before shutting its eyelids, leaving it in a trance. He also treats ‘problem’ rabbits with behavioural issues and can make them less aggressive.
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