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Daily briefing for Thursday, December 29, 2011; Trust evaporates in Europe; rebuilding cities; Chinese regulation; Gold sinks

Daily briefing for Thursday, December 29, 2011; Trust evaporates in Europe; rebuilding cities; Chinese regulation; Gold sinks
29th Dec 11, 11:40am by David Chaston

Bankers don't trust each other
Eurozone banks have deposited record amounts of cash at the European Central Bank, just days after it provided unprecedented levels of liquidity in an effort to reduce tension in the financial system. Banks placed almost €412bln ($539bln) over the Christmas holiday in the ECB’s deposit facility, which attracts a low rate of interest and in normal times is typically used by banks only to park excess cash, often at a loss. (Links may require registration.)

Consumer power changing China
China's largest dairy foods company has had its own tainted-milk problems; in their case from contaminated feed. "Consumers are more and more concerned about food safety in China, making the market more sensitive to this kind of news" said one analyst. Shares in the company fell by 25%. This year, the Chinese government has shut more than 5,000 companies that violated rules, arrested more than 2,000 people, and handed down at least one death sentence in a crackdown on food safety.

A modern problem
“We buy things we don't need with money we don't have to impress people we don't like.” 
 - Dave Ramsay

more below ...

     8 am       ---   52 week  --  
    Today   yesterday   high low  
     --------    --------   --------- ---------   
FX rates NZ$1=US$ 0.7697   0.7722   0.8822 0.7174  
  NZ$1=AU$ 0.7627   0.7596   0.8085 0.7276  
                 
Gold in US$/oz 1,559   1,593   1,895 1,319  
  in NZ$ 2,026   2,063   2,314 1,705  
                 
Copper in US$/t 9,590   9,590   10,147 6,785  
  in NZ$ 12,419   12,419   13,507 8,299  
                 
Crude oil in US$/bl 99.50   101.25   118.70 89.69  
  in NZ$ 129.27   131.12   149.14 117.26  
                 
US Treasuries 30 yr bond 3.05%   3.05%   4.73% 2.88%  
                 
Dow DJIA 30 12,166   12,287   12,919 10,402  
                 

Gold out of favour
The price of physical gold bullion fell again as London re-opened Wednesday after the Christmas and Boxing Day holidays, dropping to two-week lows against all major currencies. London dealers returning to work caught up with a 1.4% drop for the week so far, plus news of falling industrial output in Japan, seasonally low jewelry demand in India - the world's No.1 gold buying nation - and also a new edict from the People's Bank of China, banning all non-official gold trading exchanges in the world's No.2 gold consuming country. 

Grand theories do little to revive cities
How to rebuild a city? Lure the 'creative class' with cosmopolitan amenities. Makes sense. Too bad it doesn’t work.

No chart with that title exists.

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16 Comments

by  Andrewj  |  29th Dec 11, 12:44pm 1325115896

 

drjonathanwilson

Today 01:26 AM

  This article does throw up some interesting questions. Of course a rising sterling would push the day of increasing British yields further into the future - good news for British home owners. 



But of more immediate concern with the collapse of the Euro is not capital inflows (probably short term anyway) but rather the  exposure of British firms, banks and the BOE to Euro denominated assets on their balance sheets. That really should be the focus of the Treasury's attention. British balance sheets should be scrubbed clean of Euro denominated assets. 



As an aside - did you know which currency not to take if you visited that blighted country Zimbabwe which ran trillion percent inflation until it abandoned its national currency in favour of the South African Rand, the US Dollar and British Sterling as their de facto currencies?



Yes, you guessed it - the Euro. Yup the Euro is even rejected in Zimbabwe!



As another aside - did you know who is probably the single biggest holder of Euros outside of the EMU area and therefore likely to be the biggest loser when the Euro collapses? 



Yes, you guessed right again - the US Fed!



Now how did the Fed get into such a disasterous position? 

Ah, yes - therein lies a tangled tale of hubris compounded by moral hazard. Just follow the money. 



Where do you think that the 500 billion euros recently created by the ECB ended up? That's right in the US Fed. Now how did that happen? 



Well the ECB loaned the money to the EMU area banks who needed to convert it into dollars (because no one is accepting Euros anymore - see Zimbabwe) so that they could buy assets outside of the EMU area. But the problem was these same banks are locked out of the money markets. So who could they get the necessary US dollars from?



The US Fed? No, not directly, but they could get them from the ECB because the ECB had plenty of US dollars. But how did the ECB have plenty of US dollars? 



Heh, Heh, through currency swaps with the US Fed!



So let's see if we have got this bizarre story right. The ECB lends billions of Euros to EMU area banks, who then hand that money back to the ECB in exchange for US dollars, who in turn got the US dollars from the US Fed  in a currency swap.



So EMU area banks use the US dollars to buy non-EMU area assets. Yes, but what class of assets do EMU area banks buy with their US dollars?  



Heh, Heh, why US Treasuries, of course!



Mr. Obama and Mr. Geithner in collusion with the Fed have been engaging in unauthorized QE! 



And as for the EMU area banks they get refinanced by the US!



Neat, huh? Win-Win all around. 



No need for the US congress to get involved, or the Fed Board. Just bypass them all with your socialist friends in Europe.



Until the Euro collapses and then the US taxpayer picks up the multi billion tab for refinancing European banks and / or inflation eats away at the domestic purchasing power of the dollar - its called "spreading the wealth around"



Jonathan   http://www.telegraph.co.uk/finance/financialcrisis/8976204/Treasury-pla…
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by  Kunst  |  29th Dec 11, 1:07pm 1325117245

Andrew – I guess the banksters, politicians, the greediest – the failures - the imprisonments are knitting us a warm, hot Woolly for winter 2012 together.

 How is the “potato men” on the wall doing – any aging crinkles or still smooth like an arse ?

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by  Andrewj  |  29th Dec 11, 2:05pm 1325120703

Walter, I polish it every night for good luck, so far so good.

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by  Mark Hubbard  |  29th Dec 11, 2:39pm 1325122776

The urban planning article is interesting: I would say I'd hope - though I have no hope - that Christchurch City Counci would take note.

Eric Crampton comments on the article here.

And it's conclusion is well worth repeating (Mr Bob Parker, and Tony Marryatt):

 

The conclusion to draw from all this isn’t that cities can do nothing to promote economic development. It’s that they should avoid academic fads and quick fixes, which are no substitute for obvious policy goals like competently providing mandated services at reasonable cost, keeping streets safe, and not taxing and regulating away businesses—good governance, in sum, and even that comes with no guarantee to work.

 

For my own part, even before the first earthquake, we had two houses, one in Chch council territory, and one in Marlborough. Both houses had the same rating  value (GV), yet our Chch rates were three times higher - over $4,000 compared to $1,400. All the basic services in Marlborough are supplied well, and the standard of roading there was better than we had in Chch (Diamond Harbour). It's just that Marlborough left 'entertainment' of the people to private business,  wineries, etc, where Poppa Bob thought he had to spend all our money turning Chch into an event centre, meaning some dumb, and completely in appropriate, investing was done by council. I think we can flag ever seeing a profit to the ratepayer on the Flower Show, and I wonder, though know we will never know, what the total loss from the disastrous Henderson buildings purchase is now post-quake.

We need limited-council for exactly the same reasons as we need limited-government.

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by  Mark Hubbard  |  29th Dec 11, 3:35pm 1325126138

He's certainly not going to be a popular man when gets back from the Gold Coast, from which, despite the $68,000 increase in his salary because of all the extra work he has to do, he has not returned since last weeks big quakes (indicating there doesn't seem to be much he 'has' to do. I've never seen such a concerted, and long, protest letter to the editor campaign in The Press.

I forgot to mention in my above post, also, that I knew of people prior to all the earthquakes that had to leave Chch because they couldn't afford to live their any longer.

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by  waymad  |  29th Dec 11, 3:20pm 1325125232

Fully agree, Tribeless.

However, until Sandra lee's disastrous 2002 LG Act is severely modified, the Four well-beings will continue to be used as the legislative mandate to do - well, whatever the Clueless city Councils of this fair land want to do.

 

After all, what possible expenditure, deal, idea or phantasm cannot fit under one of these well-beings:

1 Social

2 Economic

3 Enviromental

4 Cultural

If'n y'all don't believe that an Act this stupid is on the books, try legislation.govt.nz, keywords local government 2002, read sec 10(b), and have yerself a little weep.

OK, and so here's the money shot:

 

"to promote the social, economic, environmental, and cultural well-being of communities, in the present and for the future."

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by  Mark Hubbard  |  29th Dec 11, 3:28pm 1325125727

Cheers waymad. I'd not realised of that provision in the Local 'Government Act. Yep, that's where it's all gone wrong. Well no, local government politicians is where it all goes wrong, but they must love that provision as it justifies anything they want.

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by  waymad  |  29th Dec 11, 3:33pm 1325126005

Used ter be a local govt wallah meself,  decades ago, T.  Always, always, read the empowering Acts....

And thoroughly enjoy the CJ article, too.  Come to think of it, the CCC has Community Development Officers, a Canterbury Development Corporation....the fads come and go, but the institutions they spawn roll on until someone is brave enough to cut their financials off at the roots.

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by  Mark Hubbard  |  29th Dec 11, 3:38pm 1325126315

Yeah, and along with all the other titles, don't forget CCC's General Manager of Regulation and Democracy (who is anything but the latter).

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by  Andrewj  |  29th Dec 11, 3:54pm 1325127277

Ok, I give up, im shocked, had no idea that the CCC was that bad, oh dear, you all may as well leave now. What a pack of plonkers you voted in, can you not terminate them?

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by  steven  |  30th Dec 11, 8:11am 1325185907

LOL.....I have to admit when I see a country with words like "democracy" in it its anything but....

regards

 

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by  powerdownkiwi  |  29th Dec 11, 6:22pm 1325136179

The Act, like the RMA, is an oxymoron (and I never stop thinking how appropriate that is).

Economic wellbeing and Environmental wellbeing don't go together. Economic demands growth in a physical sense, and has never been disconnected from same.

You can live without money - our species did it for most of it's relively short tenure on the planet, and all other species do so too.

You can't live outside very defined habitat parameters, though, and the growth in 'economic', is - with commensurate exponential rapidity - pushing us to that end of the spectrum.

That said, both mention the rights of 'the future' to be taken into account, which is more than the brigade of self-interested hacks here do.

At some stage (actually, we're past it in many fields, as with Heatley allowing decrepid Russian vessels to unsustainably hunt the slow-growing Patagonian Toothfish in NZ controlled waters) economic has to be made a  lesser goal than environment, which means that Key, English and Co are a waste of time.

The jury's out on Shearer, but the way folk are talking out on the street (not reflected here at the moment) the change is groundswelling from the bottom up. One presumes he's not silly enough to miss the bus.

 

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by  scarfie  |  29th Dec 11, 11:05pm 1325153125

I don't think we will see meaningful change until we see civil unrest. That applies to anywhere in the world.

The human behaviour factor is not understood by most so is consequently ignored. There won't be cheap energy sources found the replace fossil fuels, as history tells us that man will ride the resources until it is too late.

Just the fact that we are fishing Patagonian Toothfish is surely a warning sign (to ignore). On a good note PDK I know of one longline that won't be catching anymore of them:)

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by  steven  |  30th Dec 11, 8:31am 1325187091

Indeed, it took the Great Depression and the Second world war to end the 1st Guilded age...we are now in the 2nd guilded age...here comes the second Great Depression, though personally I think it will be the second Long Depression.....Trouble is that unrest will be world wide and I suspect terrible......we have overshot by 5billion ppl this time...you cant drop that overshoot to 2bill quickly and quietly....I wonder if it wont actually be as bad as the 2nd dark age.....Im deeply worried that thats actually a certainty....

Tooth fish, as I said above.....bottom of the barrel stuff....

regards

 

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by  steven  |  30th Dec 11, 8:25am 1325186707

Its funny (in a sad sort of way) when Philbest writes/complains that ppl cant see big picture things (yet he certianly cannot, or actually I suspect he wont admit it), ultimately its quite simple IMHO, before coal and oil we had to live on the equiv on annual sunlight. When we "discovered" them it allows us to live beyond that but even a half wit should be able to see that we are consuming a finite reserve....and at an ever increasing rate....

I had no idea on the tooth fish.....what I have been doing is watching the fish species that are being fished and the size of fish on offer for sale (flounder for instance have to be a certain size to be worth buying) its pretty obivous that we are getting near the bottom of the barrel in terms of "edible" / table fish....

Money is afterall an IOU for future work/energy....somehow we have abstracted away from that.....I assume because ppl dont have to think twice about using all the energy they want.

Hmm I found Shearer's comments interesting.....he needs to be queried more to see if he's genuine or just an opportunist.....even if he's the latter though its better than Goff...and way better than Key.  Ive never voted Labour......a genuine Shearer could change that.....

regards

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