90 seconds at 9 am: Social media forces change

Social media bolsters big brands; equity markets eye new benchmark; oil prices take Iraq in stride; fixed mortgage rates climb; NZ$1 = US$0.869, TWI = 81.0

23rd Jun 14, 7:35am by David Chaston

Here's my summary of the key news over the weekend in 90 seconds at 9 am, including news that wholesale money market moves higher are starting to push into fixed mortgage rate offers.

But first, there was an interesting announcement from Nestlé over the weekend. It said it is moving to control more of its supply chain, buy less through traders and middlemen.

The reason is that consumers expect them to take responsibility for all aspects of their products including the social aspects, and it can't do that fully when it buys supplies from traders. Driving this is the power of social media.

One of the consequences will be domination of the full supply chain my these huge brand owners, and it is a trend our food companies will need to look out for. Things could change quite quickly, freezing out smaller intermediate suppliers. It is probably an unintended consequence of social media pressure, but that is the force behind this major policy shift.

UST 10yr bond yields ended the week at 2.61%. Gold rose in New York on Friday too and will start the week at $1,315/oz. Equity markets are now eyeing the S&P500 at a magical 2000 level.

The oil price rose in the US but fell in the Brent benchmark, as Libya announced a return of major supplies. Oil prices have been remarkably stable for a long time low, but the Iraqi situation has the potential to change that. Still, Russia's shift east is satisfying China at present and taking some pressure off the world price, and Europe is being forced to be open to alternatives.

'Fear of oil' seems to have greatly dissipated as our energy intensity falls; we have updated our inflation-adjusted NZ dollar crude oil price tracking chart here and that shows a steady trend lower in cost since early 2011.

Locally we get the May migration data today along with credit card data for the same month.

We are also seeing today the announcement by ASB of some sharp rises in fixed mortgage rates, pushed up by rising wholesale money costs.

We start the week with the NZ dollar still very high as there was little change over the weekend. We are at 86.9 USc, 92.8 AUc and the TWI is at 81.0.

If you want to catch up with all the changes from Friday we have an update here.

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

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11 Comments

by King of the whiners | 23rd Jun 14, 9:02am 1403470946

US electricity prices hit all time price high in May:

http://www.cnsnews.com/news/article/terence-p-jeffrey/price-electricity…

US petrol prices to hit 6 year seasonal high:

http://www.bloomberg.com/news/2014-06-17/gasoline-at-u-s-pumps-set-to-h…

But thats OK, we will just pretend it is not happening and keep banging on about fracking.....

by steven | 23rd Jun 14, 9:25am 1403472313

Oil, yet prices often drop this time of year,

"“If things deteriorate even more, the spike could be even bigger than that,” Phil Flynn, a senior market analyst at Price Futures Group in Chicago, said by telephone. “If it weren’t for the situation in Iraq, gasoline would be coming down by now. This will probably keep it elevated all summer. It’s really disappointing.”"

and looking at the quarter prices changes as a trend,

http://oil-price.net/

Stable? if you look at a 5 day time span which includes the weekend, well yes.

Lets see what tomorrow shows once markets are open, though Iraq looks a bit quieter.

regards

by OMG_WTF | 23rd Jun 14, 1:51pm 1403488263

"US electricity prices hit all time price high in May"

Yet those using hydro generated electricity in the Pacific NW are paying as low as 4.8 cents per kwH (vs. our 26-30). Guess their hydro generators are so much more efficient than ours...not. We need the long lines infrastructure to get the electrons to Auckland, the economic powerhouse of the country...not. Not to mention the salaries for the newly privatised asset managers, boards, and directors because they are worth it...not.

by steven | 23rd Jun 14, 2:42pm 1403491320

Agree....

But you missed the dividends that the pollies demanded, hence having prices rise was a great gig for them while it lasted.

regards

by cowboy | 23rd Jun 14, 8:31pm 1403512298

Talking US electricity:

http://www.collective-evolution.com/2014/03/09/florida-makes-off-grid-l…

I understand the need for urban waste processing, but the water and electricty is just profiteering insanity

by steven | 23rd Jun 14, 9:24pm 1403515446

Actually waste isnt an issue either that can be delt with.

http://earthship.com/

There is no reason to have any services beyond being forced to have them so they can be screwed over for them by the utilities.

I must admit Im just shaking my head here. Surely enough US voters can see that their pollies simply dont care about them except as fodder. The so called land of the free, yeah right, deluded.

regards

by cowboy | 24th Jun 14, 7:34am 1403552078

waste -can- be dealt with, but in large communities it can be catastropic as a point of failure (ie with poor servicing or lazy people) but who loses if the water or pv is out, only the house owner.

Just more gladhandling by goverments overstepping to shear their flocks.

although here's a question for you - if capital gain is incoming, then is owning water and solar harvesting equipment also income? (obviously the services would have price if bought from a corporation)

by steven | 24th Jun 14, 9:15am 1403558159

Hi,

My layman's take would be,

Capital gain is on the increase of the asset value excluding improvements, ie profit. So you shouldnt pay CGT on the extension, (as you pay GST on it) but on the increase in value of the extension over time, yes. So if you have a $300000 house and adding a $50k extension makes the whole house worth $75k, then a CGT on the $25k is due. This of course makes the whole CGT thing look a bit messy, improvements are double taxed.

Solar and water equipment itself would depreciate? but you have paid GST on it...should you then pay CGT on it? I would say no....ugly.

If you sell electricity into the Grid as a return on your capital investment then I assume you should be paying (or collecting?) GST?

If you collect water for your own internal use, no though I suppose if you get pedantic on it wth the view ALL gain should be taxed then, yes...Which then begs the Q shouldnt you be taxed on the oxygen you breath? or the oxygen your plants exhale? or maybe tbe NET?

Of course the home is exempt hence this train of thought is mute.

Waste, the idea is the earthship is failry low density and each property deals with its own waste. Now if you had a community, maybe yes you could have a back up system, or say with careful positioning and slight oversizing have 4 of you share resources in an emergency. The Q would be then what happens if 1 never bothers or cant afford to repair? The other 3 would then carry the cost and be oveloaded, or at capacity at least and have no resiliance left.

Great now you have made my head hurt!

Another way to think of it would be,

Self-sufficient v corporation is a bit of a chicken and egg thing. But, go back 100~200 years and we would have all been self-sufficient in terms of fresh water and waste.

So on this historic basis should catching water and power should not be thought of as a taxable gain?

regards

by Roelof | 24th Jun 14, 9:20am 1403558453

What if most of that Capital Gain is simply the depreciation component of money..???

ie. declining value of money in terms of purchasing power.

AND...whose to say what that depreciation component is..??

IF money supply grows at 6%... and the CPI grows at 2% .... and House values grow at 6%...

What is correct measure to use... ???

( Id suggest 6% more closely reflects the loss of purchasing power ( depreciation) of money ...in regards to real Estate )..... ... ( all else being equal in regards to fundamental supply/demand dynamics)

by cowboy | 24th Jun 14, 11:16am 1403565380

I was mainly referring to the actual capital gain (after environmental factors such as inflation and gross market shift). things like improvements where adding a 30k room adds 50k to the sale value (ie 20k "tax free" profit), or when the change or roads/rail/school/local council/shops results in a coincidental jump in value (eg council changes rules and a large residental section now becomes a plot that can be split, so the value of a suitable house & section lifts by 40% instantly)

by cowboy | 24th Jun 14, 11:03am 1403564592

The theory goes that Water (m3) and Electricty (kWh in electrical or heating) is something you would have to buy, so by using harvesting equipment you are creating that level of extra income...untaxed income.

My thoughts is that such things are personal inherent rights (own house, own use, level)

ATM I think the sellback schemes are by credits, which carry negative GST (ie refunded), rather than sales which would (if over threshold) charging GST on the sale.

However that would mean to tax it, personal use would have to be metered even from self source... could mean a new type of toilet system....