90 seconds at 9 am: NZ$ zooms higher

90 seconds at 9 am: NZ$1 = US84.4c and the TWI at 75.2; Bernanke spells out clearer employment and inflation goals; still no fiscal cliff progress

13th Dec 12, 8:36am by David Chaston

Here's my summary of the key news overnight in 90 seconds at 9 am, including news the US Fed has surprised markets when it announced the rollover of its Operation Twist and mortgage bond buying programmes.

The Fed said it would hold rates close to zero while the US unemployment rate is above 6.5% as long as inflation does not rise above 2.5%. It is this adoption of thresholds on unemployment and inflation that were the surprise. Currently, the US unemployment rate is 7.7% - its lowest level in four years - and its inflation rate is 2.2%. Now it is much clearer when the US will be lifting interest rates.

The Fed also said that it would continue its monthly purchases of US$85 billion in Treasury securities and mortgage-backed securities, the second prong of its efforts to accelerate economic growth by reducing borrowing costs.

On the news, the US dollar sank in value and the Dow rose. Gold and oil were unchanged.

However, the Kiwi dollar zoomed ahead in tandem with the euro.

We open today with the NZ$1.00 = US84.4 cents and the TWI at 75.2.

This is the highest the TWI has been in more than five years. In July 2007 it reached 76.9.

In other news, there is no progress on the fiscal cliff negotiations between the US President and the Congress. Businesses are starting to adjust to the increasing reality that there will be no deal; DuPont has announced it is curtailing some spending due to the uncertainty.

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44 Comments

by Rudderless | 13th Dec 12, 9:04am 1355342663

TWI @ 75.2

US$0.844

I am an exporter

I am a DUNCE

by Rudderless | 13th Dec 12, 9:05am 1355342754

And I only thought that I was doing the correct thing for the country!

by rp | 13th Dec 12, 9:14am 1355343297

you are rudderless...hopefully we will get some decent politicians that will support you and others like you e.g. with macro prudential tools that will bring the NZ dollar down.

by powerdownkiwi | 13th Dec 12, 9:19am 1355343579

rp - this might help them get up to speed:

http://www.vaclavsmil.com/energy-in-nature-and-society-general-energetics-of-complex-systems/

HT to AlexT. (Just ordered my copy....)

by rp | 13th Dec 12, 9:24am 1355343893

you're preaching to the converted powerdownkiwi....I think the environment is crucially important. My view is we have to find more environmentally friendly ways to grow or face either a loss of growth or leaving a nasty envrionment for our children in future. My firm's done some major peices of work in this area (i won't use a blog post to advertise it however).

At least the government has announced green growth, just two days ago, is being added to its growth agenda

by Andy Rodgers | 13th Dec 12, 10:04am 1355346298

"the government has announced green growth"

That's an oxymoron.

by rp | 13th Dec 12, 10:17am 1355347066

Here's a link to it Andy...doesn't have to be an oxymoron...we can grow in cleaner ways

http://www.nbr.co.nz/article/government-pitches-greener-growth-alongside-oil-and-gas-push-bd-133798

by Learn to Socia… | 13th Dec 12, 9:22am 1355343746

Yep, you are doing the right thing. My hat is off to you and other exporters.

by powerdownkiwi | 13th Dec 12, 12:53pm 1355356408

Yep, I applaud anyone doing 'green-tech' stuff.

But there is a clear difference between 'growing green technologies', and 'growth' per se.

Green (or more accurately, sustainable) is the valid way to go, and the sooner the better. Don't confuse that with using 'green' to continue absolute growth in activity, is all. The latter can't be had, and the attempt ultimately wipes out the species.

by Chris-M | 13th Dec 12, 9:33am 1355344433

Dont worry. I've got this nice Chineese gentleman who will buy your buisness and take it back to China. Better still he will also lend you 90% of the purchase price of a hudge portfolio property investments so you can leverage up the proceeds of your sale. You should make a fortune without the worries of staff, exchange rates and tax (can you believe it your profits will now be tax free!) Dont be a dunce, get smart, join our bright, shining new future now.

by rp | 13th Dec 12, 9:38am 1355344712

...classic Chris-M

by Rudderless | 13th Dec 12, 9:54am 1355345656

Just this week I received the email from Monica, Chinese lady with the Australian boss, who will handle all of my business directly from the mainland.

Monica assures me that I will never have to work again. As for worries - Monica will handle all of those as well.

I am so relieved.

by Chris-M | 13th Dec 12, 10:04am 1355346262

There you are now. And you thought you were a dunce. You are right up with the play.

by David George | 13th Dec 12, 11:15am 1355350515

"I am so relieved"

What, did she throw in a free "happy ending"

by Chris-M | 13th Dec 12, 10:09am 1355346575

I forgot to add another important thing. That nice Mr key personally endorses this plan, AND he has personally guaranteed that your property investments will never loose value. (You will not get that sort of help with your export buisness.) Now what could go wrong?

by wtf | 13th Dec 12, 1:29pm 1355358548

Shows how much of a vested interest kiwis have been enticed into with property that no one has batted an eye lid at his implicit promise to do everything he can to support property prices. Imagine if he had promised to support the share market, or milk prices, or wool, F&P fridges or second hand cars. On top of all the other things inflating the property market in Auckland, his statement of support really was throwing petrol on the fire. What do you say Fran O'Sullivan and all the other "free traders"?

by splineman | 13th Dec 12, 1:56pm 1355360196

I suppose if you look at "equity" as your money then your mortgage becomes a "bank account" and you can have the best of both worlds, the perennial "free lunch"

Of course as a banker I'm just interested in the interest you pay me......every week.....for your whole life, hundreds of thousands of dollars worth.

Cheers

by powerdownkiwi | 13th Dec 12, 9:10am 1355343013

Inflation vs employment. Sounds like 1984.

Not surprising the dow rises as the dollar sinks - flight to imagined safety. Where alse do you go? Real Estate inflation?

by rp | 13th Dec 12, 9:34am 1355344452

...notice Bernake says he'll stop if inflation goes over 2.5%. Watch out to anyone borrowing money for real estate bubbles. If inflation goes up so may interest rates....

by splineman | 13th Dec 12, 10:57am 1355349431

He won't stop....how would we know what inflation is. By my reckoning his $2 to $3 trillion is already inflation.

The US markets are addicted to free credit to arbitrage offshore....to places like NZ. They know this easy credit will pump commodities so the NZD is a good play.

They export dollars. My 02c they won't stop.

Cheers

by rp | 13th Dec 12, 11:54am 1355352866

I think they will have to stop. It becomes circular. Print money, increase asset prices (shares, commodities, property). Get a small wealth effect. Small percentage of population can spend more. Meanwhile rest of population is getting fried. Higher inflation, and no higher wages. They reduce spending because they are more broke than before. Overall negative for growth and highly inflationary. As inflation kicks in they cut printing and raise interest rates...

Otherwise it's just a downward spiral...but never know...we may go there

by wtf | 13th Dec 12, 12:13pm 1355354008

The guys doing it figure they will be retired somewhere overseas relatively safe or behind very large walls in guarded enclaves with enough assets to live very comfortably for the rest of their lives

by splineman | 13th Dec 12, 12:13pm 1355354018

Yup....but if you live in New York, you are doing pretty good. You are a 1%'er.

There is not much of a market for treasury paper anymore. The FED can go for a long time, at no cost.

I will not bet against them.....I would lose....

Cheers

by Stephen L | 13th Dec 12, 9:40am 1355344828

The new BOE governor also apparently is likely to discard inflation targetting (which his predecessor sort of pretended to follow, albeit in a nice British way of ignoring it when it suited).

Nominal GDP growth and an unemployment target are apparently more important. Unstated by either Bernanke or the BOE, but a low currency is very obviously a core part of their toolbox.

http://www.telegraph.co.uk/finance/economics/9740872/BoE-economist-Spen…

So apart from very low interest rates, they are likely to keep printing for some time yet. Unless we change to match them, the only industries that can thrive here are immigration driven housing, and dairy/agriculture.

by Stephen L | 13th Dec 12, 9:44am 1355345077

Even better explained here:

http://www.telegraph.co.uk/finance/comment/jeremy-warner/9740931/Its-ti…

by @tony | 13th Dec 12, 9:57am 1355345848

Apparently it's sc*ew the environement.

Used to get 1:1 foir the solar elec I sold to the grid, now its capped then drops off a cliff.

Whats the point? where is the incentive to save the planet?

Oh yes; National are in power... its all about their bank buddies profits.

(Credit to Meridian and Contact buying it; but where is their tax credit from Govt???? its not even a "real" COST)

by splineman | 13th Dec 12, 10:09am 1355346561

I love the way the private FED can simply monetize $85 billion a month of treasury debt and we talk, with a straight face, about 2.5% inflation. lol.

Cheers

by splineman | 13th Dec 12, 10:13am 1355346803

And we are supposed to believe that if we put this "money" in the bank it'll be worth something in the future.......

No wonder asset prices are exploding....as are debt levels.

Cheers

by Stephen Hulme | 13th Dec 12, 11:24am 1355351082

I love the way the private FED can simply monetize $85 billion a month of treasury debt and we talk, with a straight face, about 2.5% inflation. lol.

No wonder asset prices are exploding....as are debt levels.

Chump Change

This example multiplied by many magnitudes and missing ghost collateral capitalised many times by rehypothecation dwarfs the Fed's monthly injection - the collapse of indivdual and shadow bank assets are barely slowed by the Federal Reserve's actions.

Catherine Carr:

Lets put this whole double default into perspective... Some poor Greek investor has €100,000 to invest after a life of working and wants a return on his money in a 'safe' place....

So he splashes out on a nice government bond.... Along comes the Troika in March and decides the Government has borrowed to much and has no income to pay the coupon and principal on its debt and proceeds to write off 53% of the principal of the debt...

So poor investor is now left with €47,000 in a new bond... forget about the income he was expecting with the coupon payments as they are now very reduced....

In December the IMF part of the Troika decides again that the Greeks cannot afford this new debt... Even though the ECB, EFSF and IMF are still sitting pretty on their ownership as the Greeks still have to pay that with the original coupons...

There are huge profits on these purchases too....

anyway the IMF tells the Greeks to buy the bonds back to get them off the books... Good Idea you might think but they aren't going to pay face value for the bonds just a 33.5% of the face value...

So here is out Poor investor getting a pay off for his bond in the region of €15,745..... So now our investor has lost his savings...

lets go over that again..... €100,000 > €47,000 > €15,745

How does he feel....

Yes there are corrupt thieves in Greece but they are not the majority... the majority are people like this who have been royally screwed over...

and watch it happen in other peripheral countries in the coming months

by splineman | 13th Dec 12, 11:34am 1355351673

Good reply.... I "enjoyed" the read. We have no idea of the size of that sea of paper flowing around the globe. You can see why so many yearn for the stabilizing effect of a monetary metal at a fixed exchange rate......another argument to be sure.

Of course most debt will be defaulted on and so the "savings" go as well. Either by stealth inflation or outright haircuts. Makes me nervous about kiwisaver....in fact all superschemes.

Good reason to buy precious metals ;)

Cheers

by Christov | 13th Dec 12, 10:17am 1355347057

Hmmmm.....perplexing is it not..? It would be interesting to know just where the current administration and the RBNZ feel the dollar ,could get to before being ,what they might percieve as counterproductive.

Sloshing aboot, washing all that lovely foreign dosh,oh yes we've become quite the hub in the laundry business.....makes you wanna Hop and Sing.

The only consolation I can offer you Rudderless (and I know your pain) is when this turns around, and it will, we will land with a bang, and that smug little money trader happy to let the MFG exporters go to wall because he prefers speculative investment to productive economies just might get some of that smug arrogance wiped from that weasel lipped face of his.

The downside for MFG exporters who survive, will be freight costs.

N.Z. dollar safe haven..? People seeking investment safety in our strong economy..? our brilliant management of economic policy...? Our ability to create sustainable employment..?

or the fact half of them think we are part of Australia's economy, the other half know we are easy targets to be manipulated in the pairing baskets of both hedge and trading.

One day we will speculate just what it might be like to be warm and fed.

by Andrewj | 13th Dec 12, 11:32am 1355351536

I told you so Christov

Look what Bernake is up to

>>>>

Lee Adler

The Fed today elected to print an additional $45 billion a month via outright purchases of Treasuries. That's in addition to the printing of $40 billion a month via MBS purchases that it is already doing. It will also continue to reinvest the proceeds of maturing MBS. That's been running at $35-$40 billion per month. At that rate the Fed will be pumping at least $120 billion per month into the trading accounts of the Primary Dealers. This total is as high as during QE 1 in 2009. The dealers will use the cash to purchase more Treasuries, which will partly fund the Treasury debt. Other buyers will continue to fund the rest.

The dealers will also deploy the cash in other trades, including some MBS purchases in addition to the Treasury purchases, but also purchases of equities and commodities.

The Fed has created a Catch 22 for itself by tying the Fed Funds rate to "expected" inflation. Its language was as follows.

In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal.

>>>>

As my chilren say

" its all fun and games, till someone loses an eye"

by Stephen Hulme | 13th Dec 12, 11:49am 1355352588

In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal.

This is a significant about face from keeping the Fed Fund's rate @t 0.0 - 0.25% until 2015.

Mr Wheeler will have to resolve his indication of holding the OCR @ 2.5% until early-mid 2014.

by Christov | 13th Dec 12, 1:13pm 1355357618

" its all fun and games, till someone loses an eye"

Ain't that the truth A.J.......still , that could be a blessing when the Fed wallpaper starts to look a mite asquif.

don'tcha just love Bernanke's new found confidence post Obama's return...? cancelled his mental health leave to return to the programme.

Obama...sooo how's it all going Ben ?

Ben ....just fine now Mr President ,thank you .

Obama....and how's the stimulus coming along...?

Ben ....Oh I just got hold of my dealer the other day to confirm my position is secure ,so I should be on the up in no time sir...

Obama...?

by Stephen Hulme | 13th Dec 12, 11:36am 1355351782

lovely foreign dosh,oh yes we've become quite the hub in the laundry business.....makes you wanna Hop and Sing.

C'mon - we are a rounding error economy - if HSBC paid USD1.9 billion in fines for such actions, the profits would encompass many more $biliions - enough to dwarf Auckland's capacity to launder- - and there are many better situated destinations to undertake such activities.

by wtf | 13th Dec 12, 12:08pm 1355353682

half of them think we are part of Australia's economy, the other half know we are easy targets to be manipulated in the pairing baskets of both hedge and trading.

Pump and dump. I thought Australia and NZ would be one of the first to go. Turns out we will be one of the last. Free floating currency. No capital controls. Small, shallow sharemarket. Few restrictions on foreign investment with massively raised OIA thresholds. Few restrictions on foreign owership of rural property and none on residential. Small and illiquid markets by international standards. Ripe for the big short. PM has been there, done that at Merril Lynch already with the NZD and their machinations in Ireland. He knows what's coming.

by Rudderless | 13th Dec 12, 12:43pm 1355355787

My 'uneconomic' factory is moth-balled and the doors are locked.

The locks will be removed only after "Import Substitition" becomes the cry from the Beehive.

We have lots of pain to experience before I get the call.

I can wait.

by splineman | 13th Dec 12, 10:28am 1355347695

"The Fed's portfolio totals nearly $2.9 trillion more than three times its size before the 2008 financial crisis."

Some commentators have reported over 6 trillion monetized. Very difficult for a small export nation like us. There is a LOT of money over there looking to be "exported" to places like NZ for a yield.

US dollars created at no cost with no limit "swapped" for NZ assets. Great work if you can get it.

Do we sit here and take it like good chaps? They will bury us if this keeps on.

Cheers

by splineman | 13th Dec 12, 10:49am 1355348980

"In other news, there is no progress on the fiscal cliff negotiations between the US President and the Congress. Businesses are starting to adjust to the increasing reality that there will be no deal"

Remember when this deal was originally struck? It was supposed to herald a new fiscal era of balanced budgets and discipline! Now it's the villain.

And some still hold to the fantasy that this is the land of OZ with free markets and competition.....

Cheers

by rc | 13th Dec 12, 11:01am 1355349681

"Fed Monetary policy will destroy the world"

https://www.youtube.com/watch?v=Sdy8vqiqdCQ

by splineman | 13th Dec 12, 11:17am 1355350656

"However, PIMCO’s Gross has put paid to some of this speculation, suggesting it will take 4-5 years of 200k monthly US jobs gains to get the unemployment rate down to the Fed’s new 6.5% target."

High NZD for a couple of years yet....

Cheers

by waymad | 13th Dec 12, 11:30am 1355351416

Coupla issues with the happy clappy noise from the US:

U6 unemployment rate is still way high...
Business confidence has just cliff-dived... the Small Business Survey just out has this to say:

"The Index of Small Business Optimism declined 5.6 points, one of the largest declines in survey history. The Index has been lower only 7 times since the monthly surveys were began in 1986. Prior to 1986, just two readings were lower, in 1975Q1 and 1980Q2. There were two major events shaping the November results, the election and hurricane “Sandy.” What is quite clear from the data is that the election was the primary cause of the decline in owner optimism, not the hurricane, although hurricane effects were apparent."

P'raps we should just peg to the USD - a bit like RMB - and ride 'er all the way to - where again?

by Wolly | 13th Dec 12, 11:36am 1355351762

"without the Federal Reserve the banking system in the United States would be more honest"

http://www.marketoracle.co.uk/Article37992.html

by splineman | 13th Dec 12, 11:45am 1355352302

Yeah seen a bit of talk like this. I guess you need a central bank of some kind to monetize Government debt...that is the purpose.

Otherwise how to control a synthetic debt money supply. Also because all currency is borrowed into existence the interest owed is always higher than the money supply. Debt is part and parcel to the system.....always larger and growing at a compound rate.

Eventually just paying interest becomes a burden and this is where we are.

Without the FED adding $85+ billion a month we would be swallowed in a black hole of debt default.

What a world......free markets lol

Cheers