The Last Argument

How O'Bama won

noreply@blogger.com (Mark) — Mon, 02 Feb 2009 01:46:00 +0000

Yet more hilarious videos from YouTube.

See also the Karaoke version.

It's the end of the world as we know it...

noreply@blogger.com (Mark) — Sun, 01 Feb 2009 05:05:00 +0000

Musical accompaniment to the end of the world. Very funny

This was apparently produced on Songsmith, a program which takes an input (here the graphs) and produces old school synthesiser tunes.

Melborne Heatwave

noreply@blogger.com (Mark) — Sun, 01 Feb 2009 04:09:00 +0000

The heatwave here in Melbourne is finally abating, thankfully... See what happened when the temperature hit 45.1 C on Friday.

Hilarious: Amateur Love Shack music video

noreply@blogger.com (Mark) — Fri, 30 Jan 2009 00:41:00 +0000

Found this on youtube. Not enough people spend their free time creating home made music videos to kitch 80s funk.

Some benefits of the 5 headed hydra

noreply@blogger.com (Mark) — Wed, 29 Oct 2008 15:49:00 +0000

I have been a bit preoccupied over the last few months with my crappy job and the credit crunch (hint: it's a little uncomfortable being a finance lawyer when nobody is lending... it's still long hours but with sweet FA to do, a story for another time), but I had to say something about the upcoming election, especially as I overseas voted today, a surprisingly pain-free process, although I am not sure that the unsecured cardboard 'Victorian Elections' box looked all that secure.

A lot of people who sit somewhat to the right of centre might have been focusing on the negative aspects that will result from a fourth Labour-corralled government in a row. I thought I would focus on the silver lining that even we may enjoy if (in the unfortunately reasonable likely event that all rational NZers succumb to some sort of displaced personality disorder and cannot find themselves on the electoral role come election day) the 5 headed hydra manages to devour the next 3 years of our lives.

So imagine with me if you will, a time where Helen and Mike, Russell and Jeanette, Tariana and Pita, and Jim and Winnie manage to scrap together 64 seats and form the government after having gained less than half of the valid votes. The five benefits that follow (one for each coalition partner) will keep us warm during the long winter of 2009-2011.

An end to MMP
Admittedly this one is probably a little far fetched, but also holds potentially the greatest rewards for those interested in a return to good government.
Imagine the 5 headed hydra claws itself back in despite Labour / Greens / Maori / Progressives / New Zealand First getting less than half the valid votes and New Zealand revolts against MMP. MMP is blamed for allowing such an undemocratic result to occur despite the will of the majority of New Zealand, Chris Trotter places the majority on trial for treason but no one notices. National campaigns in 2011 on electoral reform and wins a landslide 57% of the party votes, in 2012 a referendum expresses desire for a return to FPP (sorry STV, I think you would be best, but you just don't make sense to the average voter, after all who wants to rank every candidate in order (other than those reading this post)) and the 2014 election is held as a FPP election. National governs after receiving 48% of the vote, Labour is in opposition with 32% and somehow Winston wins Tauranga. NZ returns to single party governments who can reform without having to appease extremist (or blatantly populist) minor parties. NZ edges up to 21^st place in the OECD.
While fantasy, the above situation could happen. In 1978 and 1981, National won more seats despite winning less votes overall than Labour. This lead to the Royal Commission on the electoral system and, combined with dissatisfaction with the fourth Labour government (although how could you really stay mad at them) led to Bolger promising and delivering the referendum on the electoral system and the eventual adoption of MMP. It is also arguably easier to return to FPP than it was to make the jump to MMP in the 1990s (especially for National and Labour).
Some of the benefits of a return to FFP would be:

getting rid of the cults of personality that lead many of the minor parties. People like Winston are not fit to govern but only do because they appeal to enough crazy or careless people who are sucked in by their posturing to vote for them. Peters only needs one in twenty (actually less given voter apathy of many in mainstream society) to make it back time and again under MMP – and these people can be spread thin. Under FPP, without the support of a major party, a plurity of an electorate will not likely vote for a minor or an outcast, as it would just be a wasted vote. Sure you may miss out on someone who exactly represents your special brand of craziness, but at least those that rise up in major parties are (for the most part) stable and capable.
the policies voted for before an election are more likely to be the policies delivered on after the election. Under MMP a government is not formed on election night, election night is when the negotiation starts with the minor parties to gain their confidence and supply. The only way to gain confidence and supply of a minor party is to give them policy concessions; you need to give up something you campaigned on (e.g. National - bye bye saying goodbye to the Maori seats), or must give something you haven't (e.g. Labour – [insert pleasurable activity e.g. Showering / benefit to humanity here] is now banned as part of our confidence and supply agreement with the Greens).
returning to the idea of the MP as the fundamental actor in politics. One thing, and this is going to sound so Edmund Burke, that I regret is the central importance of the party to current NZ politics rather than the MPs in parliament. The idea of voting for someone, rather than an ideology or brand, holds a lot of attraction – especially in giving a vote for a person's skills and convictions rather than voting for a party and hope that the party selectors have given us a good batch this year.
effective government. FPP is more likely to have majority governments rather than the minority coalition governments we have been getting lately. We are not going to see another fourth Labour government under MMP.

Of course there are pitfalls too. For example there is more vote wastage, as if you vote for the losing candidate in your electorate your vote has no influence on the formation or makeup of Parliament.

A switch to another proportional system (such as STV) would be even better... I can however but dream...

Finally have those people who didn't do all the public law classes at law school care about constitutional reform
Continuing on with the theme of a revolt against the system that managed to install the 5 headed hydra, the (not so) average New Zealander may start to care about constitutional reform. Currently only people at law school studying public law care.
First on my list of reform topics would be:

Electoral Finance Act – this will go anyway if National win next weekend, but people will hopefully start to see what a horrible and undemocratic piece of legislation this is. Others have put far more time and thought into why this is so bad so I won't rant here, but it has to go.
The Maori seats – this may come under threat if the Maori party hold the balance of power and go with Labour despite the National-bloc having a plurity of the votes cast. The seats create two classes of voters, those on the Maori roll who can tactically vote to support the party of their choice and the Maori party – thereby creating overhang seats and receiving greater influence with their vote, and those on the general roll who can't. With the switch to MMP, the Maori seats are unnecessary, it ain't about the people in parliament any more, it's about the parties and Maori do not need special seats to have Maori parties in parliament. Read the Royal Commission on the Electoral System, it's all in there.
A written constitution – there is virtually no limit on the power of parliament in New Zealand. A party that controls parliament can pretty much do whatever it wants, no matter how undemocratic it is (*cough* Electoral Finance Act *cough*). A written constitution, if made properly (i.e. this time DO NOT copy Australia), can be flexible and can constrain the excess of governance without harming government. I believe it would also lead to greater public buy in to the civic process, just look at the USA, it's not a perfect system, but at least everyone knows how it works (who in NZ really understands how the executive and legislature differ, or what a constitutional convention is).
Become a republic – NZ at least needs to have the discussion... and I don't even believe in national identity.
A set date for elections – instead of whenever the PM decides to call an election, there should be a set date that elections occur on (e.g. the first Saturday of November every FOUR years – and to hell with the rugby). This would remove a major advantage of the incumbent government.

New Zealand goes bankrupt
The 5 headed hydra will run the economy into (and deep under) the ground. The 5 headed hydra parties are not parties able to cope with solving problems except by buying their way out of trouble. New Zealand needs a major rethink of its economy, Labour has left it listless. There are however at least two economic benefits to a bankrupt New Zealand, both flowing from a collapsed New Zealand dollar.
One, non-dairy exporters will finally be able to sell something overseas again and hopefully productivity will begin to grow and not be based on 'borrow and consume'.
Two, I, having emigrated to Australia seeking greener pastures (which are actually quite green – literally and figuratively - here in Melbourne), will once again feel richer compared to the few I know who still live in New Zealand – The NZD/AUD exchange rate is definitely favouring the NZ dollar currently. It would therefore be good if the 5 headed hydra got around to collapsing the dollar before I have to come back for Christmas.
John Key grows a spine
John Key has not in this election campaign been confident enough to propose the significant reforms required to transform New Zealand to a productive high growth economy. He has sought to neutralise fear of National by adopting Labour's ill founded policy. Unfortunately, I doubt he has a secret agenda waiting to be put in place after the election either. While it may have eased the concerns of those dependant on Aunty Helen and may give National the election, he has shown a lack of ambition for New Zealand.
Perhaps if the 5 headed hydra win in 2008, the disgust in 2011 will allow him room to do what is necessary to fix the economy.
Winston gets back in
There really is nothing good about Winston Peters except it is entertaining to watch. him. squirm.

So don't worry there is hope for us even with a 5 headed hydra in charge.

Inflation v Tax Cuts

noreply@blogger.com (Mark) — Mon, 19 May 2008 10:34:00 +0000

I want to say something about the statement 'tax cuts increases inflation' that is being thrown around a lot lately. This is being used, particularly by Cullen in New Zealand, to justify not cutting taxes (and criticising National's not yet promised tax cuts - something I will touch on below).

Inflation is caused by general demand exceeding supply. According to those using inflation as the spectre to justify not cutting taxes, demand increases as the supply of money increases and the supply of money in the economy increases when taxes are cut as the amount of money that taxpayers has increases.

Thus the statement 'tax cuts increase inflation' rests on the assumption that tax cuts will increase demand, presumably because all the tax cut money will be spent where as it would not have been if it was not cut. This is what I have an issue with... the fact that it is assumed (by Cullen, the media and those that just accept what they are told) that not only will all money returned to taxpayers be spent, but that money that is not returned in tax cuts will not be spent.

From financial year end 2006 to financial year end 2007, New Zealand government expenditure increased by 5%, from $65,422,000,000 to $69,017,000,000. Year on Year inflation in March 2007 was 2.5%. This means that government expenditure increased by 2.5% in real terms (i.e. negating the effect of inflation. The effect in real terms will be the real effect of growing government expenditure on demand and inflation) over the same period of time.

Therefore not cutting taxes is not demand nor inflation neutral, unless government expenditure grows at the same rate as inflation, inflation will be influenced. If expenditure grows slower, demand caused by the government decreases; if expenditure grows faster, demand caused by the government increases.

Growing government surpluses can reduce demand by taking money out of the economy, but such growth in surpluses has to outweigh the increase in government expenditure. Also the only place a growth in surplus in real terms can come from is by taking money out of the non government economy. The non-government economy will have to have decreased by 2.5% in real terms between 2006 and 2007 to offset the growth in government expenditure with regards to increasing inflationary pressures.

I also have issue with the assumption that all money returned through tax cuts will be spent increasing demand. Much may be said about (New Zealand's in particular) woeful savings rates, but it is unlikely that every cent will be spent. Some will be saved for those that can afford to save and some will be used to retire debt, which does not increase demand. All increases in government expenditure are spent, increasing demand.

The statement 'tax cuts increase inflation' also ignores the supply side of the inflation equation, as if supply increases relative to demand then inflation should decrease. As government expenditure is unlikely to be efficient or productive expenditure (feel free to let me know if you disagree, I have not yet examined the numbers for this) but rather redistributive, it is unlikely to influence supply. Tax cuts, and especially tax cuts for business or aimed at higher income earners, on the other hand at least have the opportunity of being put to productive use through investment in productive business, increasing supply and lowering inflationary pressure. I say tax cuts aimed at higher income earners, as it is higher income earners who can afford to, and are more likely to, invest in shares and business rather then just pay off a little bit more of the mortgage

Cullen has used the inflation spectre to criticise Key's Freudian slip that National's tax cuts will be around $50 a week. Cullen said:

"Mr Key has not yet seen up-to-date inflation forecasts, he has no idea
what Treasury is predicting by way of economic or revenue growth in the year
ahead and no idea if his $50 a week or more in tax cuts would result in higher
interest rates for New Zealanders."

Even $50 a week tax cuts will apparently cost only $5 billion, only slightly more then the increase in government expenditure from 2006 to 2007. The increases in government expenditure has had more of an influence on inflation and raising interest rates then even National's not yet promised tax cuts.

Finally, it annoys me that a rise in interest rates for those who hold mortgages becomes a burden every tax payer has to bear. But that is a blog topic for another time.

Round and round some of the (Australian) budget forecasts

noreply@blogger.com (Mark) — Thu, 15 May 2008 11:30:00 +0000

The Australian budget was released Tuesday, and why in the most part I (and the commentators) thought it was a sensible budget, there were a few things that looked a bit convenient...

First the budget forecast 3.25% inflation for next year where the Reserve Bank of Australia last week forecast 3.5%. The budget based this lower forecast on its conservative growth forecasts. This is good for the government, as the government wanted this to be a 'low inflation budget' (although 3.25% is still above the target). But the budget is slightly circular, the low growth forecasts and budget itself will lead to lower inflation as forecast in the budget, which justifies an inflation fighting budget, which is based on the forecast of lower inflation. The difference in forecast is also a part of the government saying to the RBA, "look please please don't raise interest rates again, we are doing our best".

It will be interesting to see whether the RBA agrees with this lower forecast in its next monetary statement. Assuming that nothing else fundamental changes, then this will be a major independent test of the budget... and not everyone thinks that the budget was enough for the RBA to lower interest rates.

The budget also forecasts unemployment to grow from 4.25% to 4.75%, a growth of .5%. Once again this growth is based on the very conservative growth forecasts that the budget has adopted, as lower growth leads to lower employment growth, leads to growing unemployment (leads to lower growth). Once again this benefits the government as it leads to lower inflation forecasts, wage moderation and justifies family welfare increases.

Swan probably is the 'luckiest incoming treasurer in Australian history', given he could afford to spend big and tax less. However sometimes the rhetoric around the budget has made me think of the Disraeli quote 'lies, damn lies and statistics' (or is that 'politics'), for all the anti-inflation / slashing government spending talk its very similar to what Costello would have done.

Lost my stupid post

noreply@blogger.com (Mark) — Wed, 14 May 2008 13:48:00 +0000

Was going to post on some of the forecasts in the budget, in fact had written the post, found all the links to the budget, RBA statements etc and hit "publish post".

The damn blogger had logged me out and it lost the post!!!!

So ridiculously frustrating, 2 hours work down the drain, no recovery, spent 45 mins trying to find it it is no where!

I shall try to do it again tomorrow as I am far to tired today. But it is damn hard to do, working 12 hour days at the moment. My only free time was to relax and write a post.... and its lost!!!!!!!!!!!!!!

Grrrrrrrrrrrrrrrrrrrrrrrrrrghhhhhhhhhhh

Australia v NZ: Swan's budget

noreply@blogger.com (Mark) — Tue, 13 May 2008 10:27:00 +0000

The Australian budget has been released today. As expected Australia is cutting taxes. I myself am receiving $1,100 extra in the year from July 1 (although hopefully my salary will go up too) through threshold movements, plus the 1.5% medicare surcharge will disappear.

However, lots and lots of money is going to 'working families', as if they didn't get enough extra
compared to us productive childless earners anyway. Read here and here for a nice criticism of family friendly tax regimes; they really don't make any economic sense.

A note on the tax cuts and inflation, inflation (currently at 4%) will erode about $3000 from my purchasing power overt the next year, the threshold movements will redeem a bit of that, but (like the problem in NZ) bracket creep is robbing more than the threshold movements. Therefore the tax paid as a proportion of total income grows each year. At least Australia has been increasing these thresholds over the last few years unlike NZ, but the movements have not been enough to prevent bracket creep completely. It will be interesting to see what Cullen does on the 22nd, I think he will probably raise the thresholds (at least the low ones).

P.s. I am watching Malcom Turnbull trying to rip apart the budget, unfortunately he is not very convincing.

No quick news today

noreply@blogger.com (Mark) — Wed, 30 Apr 2008 10:26:00 +0000

No quick news today. Was very busy and didn't have much of a chance to browse news sites.

I will post separately on the articles I found.

Quick news: NZ$, Distribution network sale, Immigration and ANZ bailouts

noreply@blogger.com (Mark) — Tue, 29 Apr 2008 12:28:00 +0000

Tuesday, April 29 2008:

New Zealand exchange rate to keep plunging

It looks like the NZ dollar is to keep falling. And the current falls are only caused by the omission of the word 'significant' in Bollard's speech. What is going to happen when he actually stops tightening and releases his interest rate grip? The NZ dollar will plunge. This is a result of the NZ dollar being over valued as a result of the carry trade (borrowing in low interest rate currencies, such as the Yen, and lending in high interest rate currencies, of which the NZ dollar is the first world's highest); the Japanese housewives and Belgian dentists don't have a large risk appetite and they will lose a lot if the currency falls, so they get out of their NZ dollar investments which in turn precipitates further declines of the NZ dollar.

Not that a lower exchange rate is of itself a bad thing, it will help exporters. But inflation will skyrocket (caused by more expensive imported goods), and I am picking the speed at which it falls will cause a mini crises of confidence.

Vector sale of Wellington electricity distribution network

Apparently the sale of the Wellington electricity distribution network will go ahead:

"Dr Cullen's office said yesterday that his advice was that the network was not on sensitive land, so it did not have to pass many of the hurdles facing the Auckland Airport sale."

Why is it not on sensitive land? What makes the parcel of land that Auckland Airport is on more 'sensitive' then every piece of land the various parts of the Wellington network are on? The new regulations would be infinitely better, although still not good, if investors knew in advance what was going to be affected (i.e. stopped) by the new regulations. The article continues:

"The Hong Kong buyers of the network will instead be judged on whether they have experience and acumen relevant to the asset, whether they are of good character and have a financial commitment to the asset."

This seems sensible right? That is because it is. If you are going to have a restriction on foreign investors (which I disagree with), this is criteria that should be used to measure the foreign investor against; the measure should not be related to what the asset is. And where do these criteria come from? From the Overseas Investment regime that was in place before Cullen changed the rules.

A few other points:

Helen said she had no particular view on the electricity network, but noted that it had been in foreign ownership twice before. Can I just ask how this is different to AIAL which is already 35% owned by foreigners? And why should any of it matter?
NZ First said it was a pity that another asset was passing from local hands into foreign ownership. Once again, why does it matter? Woolerton (nor Winnie) have not given any reason why it should matter. And, to jump on the dredging up the past bandwagon, Winston sold AIAL in the first place into, among others, foreign ownership. As for the worry that the new owners will bring in competing workers from China under the recent Free Trade Agreement, I doubt it, the workers can only come in where NZ is lacking in skills.
And as for the Greens saying prices will rise. They won't. The distribution network is highly highly regulated, particularly when it comes to prices. And do the Greens think that Vector were operating without debt? The very reason they are selling the network is to reduce debt. Prices will not rise.
Finally, also on the Greens, saying that the NZ Super Fund should buy it, what rational economic explanation can they give for the NZ Super Fund to do this? If all of its investments were made on the basis of preventing local assets falling into foreign hands I certainly would not want to grow old in NZ. Fortunately I probably won't.

NZ Politics: Immigration scandal

National is calling for the people who authorised the preferential immigration treatment to be exposed. Now usually I would say that the people within a ministry or government department are just doing their jobs and should suffer for bad direction caused by their superiors (the ministers and department heads). But if, as stated in the independent report (produced by former Justice Secretary David Oughton; a quick Google search turned up nothing of note), the immigration head was completely blameless, then those who are to blame should be outed or lose their jobs. It is situations like this that undermine the confidence in the immigration service and half arsed solutions (like an independent report that clears the department head but doesn't reveal the culprits) do not do anything to restore it.

ANZ Bailing out failing Australian stock lenders

ANZ is suffering a reputational hammering due to its handling of the Opes Prime affair (see my previous posts here, here, here and here). It has it seems taken a different tack with the other stock lending brokers whose business models are failing (see this post for more on stock lending in Opes Prime). Tricom and now Chimaera Capital have been bailed out by ANZ injecting equity into them rather then enforcing ANZ's securities or selling the shares ANZ has been lent.

Now I obviously don't know what ANZ knows about Chimaera, but is it really worth buying into Chimaera to avoid the trouble its been having with Opes? The damage has been done and the particular business model that Opes and Chimaera have been running is flawed, ANZ should enforce its security and sell the share it has and let Chimaera sink.

Opes Prime: Singes Singapore, collapsing charges and liable for litigation

noreply@blogger.com (Mark) — Mon, 28 Apr 2008 11:49:00 +0000

Some recent updates on the Opes Prime saga:

Opes Prime collapse hits Singapore

The Opes Prime collapse has spread overseas causing a mini scandal in the Singapore markets. Merrill Lynch repossessed (hopefully under something better then its faulty Australian charge, see below) shares that were being used to take over a Singaporean company. The shares were subject to a Opes Prime infamous stock lending arrangement and on Merrill's repossession the takeover collapsed, as did the share price from 22c to 7c.

Merrill Lynch's invalid charge

Merrill Lynch, which has relied on a charge over Opes Prime assets (these include the shares purchased by the Opes clients as Opes ran what is called a 'stocklending' arrangement with its clients, see below), failed to register its charge in time (it needs to be done in 45 days of the charge being given) as well as not registering it until after Opes went into administration (and it is therefore voidable) and the charge is therefore ineffective.

I would certainly hate to be the junior in the finance team of what ever law firm Merrill Lynch uses. It is a $600 million fuck up. A career ending move (and scarily easy to do).

ANZ is lucky and does not need to rely on its charge (which was only registered the day before Opes's administration) for it to sell most of the Opes securities it already has, as ANZ had a stock lending arrangement with Opes itself (like what Opes had with its clients). ANZ does need it for its further 90 odd million loan it made to Opes just before it collapsed, but its charge will be effective for this loan anyway.

A stock lending arrangement involves:

A holder of shares (for example Opes) sells shares to another party (for example ANZ) for money (or something else like different shares);
ANZ has an obligation to sell equivalent shares back to Opes and Opes to pay the money back (less ANZ's margin);
While ANZ holds the shares it is the legal and beneficial owner of the shares and can deal with them as it likes including selling them and doesn't need to return them to Opes if Opes defaults (which it did here).

Opes had stocklending arrangements with most (but not all, these ones won the injunction against ANZ preventing them from selling their shares) of its clients, which is why Opes clients suddenly found ANZ and Merrill selling their shares even though they were not facing margin calls and were not in default themselves.

Opes creditors will pay for any litigation twice

Opes clients will be lucky to get the forecast 30c in the dollar, especially if they carry through with all the litigation against ANZ and Merrill that various class action supporters (those with vested interest in seeing a class action proceed) are pushing for.

ANZ, under its security, is entitled to all costs defending any actions related to the security (which the class actions will be) and the administration will need to continue while the litigation continues, increasing administration costs. These costs will quickly eat into the 30c in the dollar that the unsecured creditors have been promised.

Even if the unsecured creditors win, they won't necessarily get any more as ANZ will then enter the pool of unsecured creditors diluting their stake (and ANZ certainly will not lose on all points that the creditors will take against it).

Quick news: Vector sold (for now), Biofuels, UBS and Subprime losses

noreply@blogger.com (Mark) — Mon, 28 Apr 2008 10:06:00 +0000

I have decided to quickly post the links I collect each day, including any little comments I have, on the topics I want to cover but do not have the time or inclination to do a major post that day. So beginning today, I have 'Quick news'.

April 28 2008:

Vector sells Wellington network

Vector sells the Wellington electricity network to a Hong Kong company, with apparent links to the Chinese government. This couldn't have come at a better time to embarrass the NZ government, people are still angry over AIAL and what ever the decision (and process the government takes to reach that decision) will be under intense scrutiny. To my mind at least an electricity distribution network, especially the one distributing electricity to the nation's capital, is far more nationally important and strategic then an airport. An electricity network is a true monopoly, the people in that area cannot turn to another distribution network for their power, if it fails or is mismanaged, the people of Wellington will have nowhere to turn. AIAL on the other hand, may be NZ's most important airport, but other ones do exist. As for sensitive land, no doubt parts of Vector's network exist on such land (although the land is most likely leased rather than owned). Labour are in quite a quandary, do they stick to their new principle and veto the Vector sale? or do they admit the rejection of the CPP AIAL bid was just a political stunt to appeal to those jealous to the 'rich pricks' who can afford to invest in an airport.

Biofuels

This article discusses biofuels and the need to abolish quotas. Stopping biofuels won't fix food prices like some think, but allowing free trade in biofuels will allow countries like Brazil who are converting ex-pasture into sugar cane for biofuels to produce them cheaper and without the deforestation that the current distorted production (from tariffs and subsidies) costs and causes.

UBS and Subprime losses

UBS released its report to shareholders on its write downs from subprime mortgage losses. Essentially UBS stopped looking beyond the AAA ratings on its bonds through to the loans they were packaging behind them and did not examine the loans as they normally would have in the normal lending situation. As those loans comprised subprime loans, UBS was hit hard when the crises started late last year. UBS should be commended for releasing such a frank report into the reasons behind its own loses. This is essentially a lesson in maintaining proper standards when it comes to investing. In summary: No matter who you are, massive bank or retail investor, you should always understand what you are investing in and what risks you are taking BEFORE you invest.

The week in review (or at least topics I had intended to rant on)

noreply@blogger.com (Mark) — Sun, 27 Apr 2008 10:26:00 +0000

Here are some links I intended to post on during the past week but was unable to due to being really freaking busy.

New Zealand

The Treasury papers advising the government on the AIAL bid: I had intended to do a major post on this, but the stupidness of the government in ignoring the advice has been covered elsewhere and I covered off the consequences of interfering with free investment in a previous post.

This article on the Australian first home buyers grant should serve as a warning for NZ, particularly as housing affordability seems to be a hot button topic this year (I am picking at least one party will bring a policy like the Australian first home grant in). A nice quote:

"Any time you divert taxpayer funds to encourage people to buy, it is counter-productive to improving affordability. Essentially what was intended to improve affordability did the exact opposite. And now we're all paying the price."

Global economy

This article discusses the new challenges facing the global economy. Particularly interesting is the comment that political consensus and a liberal and global economy may be challenged due to the fact that developing countries are starting to consume like developed countries.

Miscellaneous

Time-lapse video of a man who was trapped in a lift for 41 hours. I almost went a little insane just watching it. No one knows what went wrong, but there was clearly someone working on the other 3 lifts during his ordeal. I really really hope this never ever happens to me (and I do have to traverse a few lifts each day from my apartment to my office and back).

George W. Bush on Deal or No Deal: Some quotes from Dubya:
- "I'm thrilled to be anywhere with high ratings these days";
- "how would you like to host a three trillion dollar deal or no deal",

I guess it would be funny were he not the Leader of the Free World.

It turns out executions are not "cruel and unusual punishment" in the US. Well we already knew that in the US executions were run of the mill. But I had hoped for a better response then just "the possibility that states may be obliged to adopt a more humane method" to lethal injection.

The Incredible Shrinking Banks

noreply@blogger.com (Mark) — Sun, 27 Apr 2008 01:44:00 +0000

This is a pretty powerful image of the impact the credit crunch (or what ever you want to call it) is having on the world's banks.

As the picture says 'most banks have seen their value halved from a year ago due to sub prime related write downs'.

"So what", I hear you say with steepled fingers, "those banks have been making huge money while the times were good, let them take some pain now. Mwhahahaha".

It matters hugely for everyone however, due to what is called 'fractional-reserve banking'.

To explain, banks have a certain amount of money (capital, deposits, etc) that they lend out (for people to buy houses, to spend on credit cards, to businesses to operate / buy other business, to other banks, to governments, etc ad infinitum).

But the banks lend out more then they have on deposit. How do they do this? The banks rely on the fact that not everyone will call upon their deposits at the same time (if they did it would be a bank run, the most recent examples being Bear Stearns and Northern Rock) and that they therefore only need keep a portion of the deposits on reserve to meet calls on deposits. These assumptions allow the bank to lend money out more then once.

For example, if the banks must retain a 20% reserve of their deposits:

a person deposits $100 in a bank, the banks holds $20 in reserve and lends $80 out;
the recipient of that $80 spends or saves it and that $80 ends up back in bank accounts. The banks who receive the $80 hold $16 in reserve and lend out $64 (so from the original $100 deposit we have $144 lent out);
the process continues, the $64 makes it way back into bank accounts, $12.80 is held in reserve and $51.20 is lent out;
in the end, from the initial $100 deposited, the banks are able to lend out $500 (this amount depends on the reserve they are required to hold) and $100 is held in reserve throughout the banks involved. In effect $400 is created through the bank's process of lending out money.

Now what happens when the banks have to write down the value of their assets as a result of sub-prime losses? They have less money to lend, and therefore total monetary supply shrinks. This means less money can be spent on buying houses (and the housing bubble bursts), less money can be put on credit cards (and consumer spending, a big driver of the economy disappears), businesses cannot borrow money (and productive growth drops), etc. It is all round bad for the economy.

These write downs effect Australia and New Zealand too, even though the banks on the list and mostly American and European. Both Australia and particularly New Zealand rely on money from overseas to fund their spending binges, as the overseas money stops following the same effects happen; less money to spend on houses, credit cards and growth.

Note: the picture came to me third hand and was apparently given by UBS to its customers to show the impact the credit crunch is having on the banks.

Update 27 April 2008: I found this article while checking back through the last weeks links I intended to post on. If KPMG are correct, which they almost certainly are, this does not bode well for NZ (and Australia) and the consequences described above of tightening credit conditions will soon be apparent. Good luck refinancing that mortgage.

Australia v NZ: Abandoning NZ and Cullen's comments

noreply@blogger.com (Mark) — Sat, 26 Apr 2008 00:55:00 +0000

Stuff led with the attention grabbing headline 'One in 10 Kiwis eyeing Australia' this morning.

The article discusses the latest Fairfax poll that puts National on 52% compared to Labour on 34%, and states National, on this poll can govern alone.

It always worries me seeing 'National can govern alone' spread across the media. While if the poll did actually translate into seats it would be a good thing and although National may be secretly hoping for it, I think given the average New Zealander's tall poppy envy, resentment may start to kick in. Non-rational voters who were leaning National for the change of face may turn away, rational voters who want a National government may, by considering the election already won, turn to compatible minor parties who policies more closely align with their interests.

Anyway, back to Australia, the article is saying that approximately 430,000 New Zealanders are considering moving over here. Even if only 10% of those considering the move carry it through, that is still 43,000 abandoning New Zealand for Australia.

With the 8,500 who return to New Zealand each year, that makes a net migration to Australia of 34,500. Therefore 6,500 more New Zealanders are moving to Australia in 2008 then did in 2007 (I note that the Stats NZ population clock is only based on a net emigration, anywhere in the world, of 12,032.5 per year).

This is a worrying trend, and how does the government respond? Cullen is apparently unsurprised by the high numbers looking at Australia as an alternative:

"given the enormous publicity that's been given to migration to
Australia".

Yes, that's right Australia is marketing itself as a destination to live so effectively that 10% of New Zealanders are considering a move over, and, last year, 36,500 New Zealanders made the move. Somehow, and correct me if I am mistaken, I do not believe it is all about marketing. Cullen goes on, he cautions against an overly optimistic view of prospects in Australia:

"Of course confidence has collapsed in Australia as well. I think people better
look fairly carefully. And inflation is higher in Australia than it is in New
Zealand. I think there's still the picture the Australian economy is booming
along, whereas they're running into some headwind as well."

Yes, business confidence in Australia is down, but not as bad as NZ. However, I do not see a lack of confidence in the average Australian person. Interest rates are up, but not at the level they are in New Zealand. Job security is not an issue, Australia does not rely on a few businesses to provide jobs that support whole industry sectors (i.e. there is no F&P about to leave and topple a town's economy); it would take a BHP to leave to have the same effect on Australia, and that cannot happen as the resources BHP depends on are located in Australia, mining is not transferable (unlike a manufacturing plant, or it seems an airport).

As for inflation, yes Australia is at 4.2% where as New Zealand is at 3.4% (both CPI measures). But both are still low by historical standards, and growth in Australia remains higher (which means that higher inflation will impact less in real terms). Plus I would like to see what happens to inflation when the overvalued NZ$ collapses (either when the Reserve Bank starts easing, which it may never do, given the inflation danger, or when those buying the NZ$ grow more wary of the risk they are taking). This will send NZ inflation through the roof, everything imported will become more expensive.

How to beat the bank... Avoiding late payment / overdrawing fees

noreply@blogger.com (Mark) — Fri, 25 Apr 2008 11:41:00 +0000

There is a general principle in law that a penalty in a contract is unenforceable. There is currently a test case in the UK as to whether the late payment and overdrawing fees that most banks apply are penalties or not. And here in Australia, VCAT (the Victorian Civil and Administrative Tribunal) has just released this decision which confirms that a $40 bank late payment fee is a penalty and unenforceable.

This does not mean that any fee your bank charges you, or the entirety of a fee charged, will be considered a penalty, but

A fee charged by a bank must be a reasonable reflection of the loss the bank has suffered as a result of the customer’s breach;
A fee of $40.00 for failing to pay an outstanding credit card balance (as it was in this case), as well as interest charges approaching 20%, is not a reasonable estimate of the bank's loss – rather, the fee is a profit for the bank as a result of the customer's breach of contract; and
The relative bargaining positions of the parties is grossly uneven, with the bank able to charge any fee it likes without any course of appeal or mitigation by the customer.

Unfortunately VCAT decisions do not set a precedent, but the decision was well reasoned and based on this semi-official report, which is well reasoned and finds that bank fees are too high.

You can see the application that was made to VCAT here.

And on a related note, a colleague of mine, with four overdrawing fees, challenged the fees with the bank and two were immediately reversed. I passed him on this story, he took it to the bank, they thought about it for a day and then reversed the other two.

Australia v NZ: Foreign investment and national interest

noreply@blogger.com (Mark) — Fri, 25 Apr 2008 08:20:00 +0000

This isn't really an 'Australia v NZ' post, but this does follow on from a post on the foreign investment issue I have made before.

This article reports that the Australian government has very politely, quietly and discreetly 'suggested' that a bunch of Chinese companies that have lodged applications to investment in Australian resource companies withdrawal their applications, which they have done.

This is not an outright rejection of Chinese foreign investment in Australia but is to give the new Rudd government more time to consider 'the issue of national interest in terms of ownership of the Australian resources industry'.

Now I do not agree that national interest should determine who can and who cannot invest in an asset, in fact I fail to see how it is even in a nations interest who does or does not invest. It arguably benefits the people within a state if all successful business within that state (I use 'state' as it is a more geographically and politically precise term then 'nation') are owned by them, but what if they cannot afford to own and grow their businesses (like New Zealand) or, shocking as it might be, do not want to (as there may be more successful business overseas)? And who invests in the poorly performing or risky domestic businesses? Are these open to foreigners? What happens if the fortunes change?

Also, does the government of the state force those within its borders to invest in local business? And if not, why not? It would be in the national interest.

Why not throw away the facade of economic liberty and nationalise all domestic productive business and force everyone to invest in those businesses by collectivising the results of personal production to put back into those businesses? There does exist a precedent... Its been done before in the USSR and Mao's China.

It really should not matter, to the business or the 'national interest', where the investment money is coming from. If there is a willing seller and a willing buyer, the transaction should benefit both parties, the business and the state. I shall explain why:

Seller: is paid the market value for their investment in the business, they can use this payment to invest else where (either domestically or internationally, both which will benefit the seller and state);
Buyer: gains an investment in the business, and, leading up to the transaction, did not have expend what can be very significant money (due diligence, bidding, complying with securities legislation, etc) preparing for the transaction that may be lost through an uncertain regulatory / political risk (caused by uncertain investment rules, such as 'national interest' tests);
The Business: benefits from having a stable price for its investments not affected by market uncertainty and will likely find it easier to raise further money at a better price;
The State: benefits from having foreign investment in that its businesses can be appropriately funded and therefore grow and it frees up domestic resources to be invested in other domestic business or internationally (which will mean foreign income comes back).

Now, why having restrictions on investment (what ever the restrictions are) is bad for all these parties:

Seller: will not get a true market price (read 'won't get as much', just look at AIAL's share price before and after the NZ government's 'strategic asset' intervention) as the price people are willing to pay is distorted by the restrictions on investment. Seller may also have a much more illiquid investment as the pool of purchaser's is reduced and others who can purchase despite the restrictions may find the investment less desirable as a result of the restrictions;
Buyer: obviously cannot purchase if restricted and must invest in a less desirable asset;
Business: finds it's value distorted from the true market value due to artificial restrictions on investment in it. Business may find it harder (or at least more expensive) to raise funds, as it's value is lower;
State: who creates the restrictions, will find its citizens stuck investing in a business that they cannot transfer and more significantly the state (or at least those poor citizens who have been stuck investing in the business) is now shouldering all the risk in the business where some of that risk would have been spread overseas (the politicians should remember that investment does comes with risk and they should accept the blame and political cost when a business fails that has been subject to a foreign investment restriction). Of course the State does receive the political benefit of being seen to 'protect' a domestic asset; a benefit that flows from those citizens who do not invest.

The only time that I can see a national interest restriction on foreign investment being appropriate is where the foreign entity has a nefarious plan. That is they are only investing in order to damage the business. But why restrict such an examination to foreign entities? Such a prohibition should apply to everyone (and arguably does though the general company law (in both Australia and NZ) relating to directors duties. A nefarious shareholder is not going to be able to ruin a business, as the directors, even the directors appointed by the nefarious shareholder, would have to breach their directors duties in order to do so).

It is this that presumably the Australian government wants to consider further. Do the Chinese have a nefarious plan to drive down resource prices (damaging the businesses they are investing in) in order to benefit China? If they do not, what possible national interest consideration could mean that they should be denied investment?

Some, including BHP, will no doubt argue that the Chinese are not trying to drive down resource prices but are trying to prevent the BHP / Rio Tinto merger for fear that a combined BHP / Rio will be too powerful. But what is wrong with that? Surely it is the Chinese's prerogative to purchase a company to prevent a merger (the purchased companies directors still have a duty to act in the companies best interests), just as it is the current owner's prerogative whether or not to sell to the Chinese. To stop the merger, the Chinese will have to pay a premium to what BHP are offering (Chinalco paid more for its Rio purchase then BHP is offering, by about 16%), which will send more money to the current shareholders, increasing the money they can use to invest elsewhere.

Fortunately, and unlike the NZ government, the Rudd government is taking the time to get things correct procedurally and ensuring the rules will be consistent across the foreign investment landscape. So while I may not agree with the idea of a 'national interest' restriction on investment, at least it will not create an uncertain investment environment with regulatory / political risk.

Tresling

noreply@blogger.com (Mark) — Wed, 23 Apr 2008 12:13:00 +0000

They said it couldn't be done, but Tresling is finally here!

Combining Tetris and Arm Wrestling only the strong (and nerdy) need partake.

Watch the video for Tresling in action (it actually looks quite fun) set to Survivor's 'Eye of the Tiger'.

And I will be back to blogging properly soon, been a hectic week.

$5 Business Class: a lesson in Contract law

noreply@blogger.com (Mark) — Sun, 20 Apr 2008 11:21:00 +0000

Irish Airline Aer Lingus mistakenly offered transatlantic return business class fares for 5 euros.

They certainly look silly but what are their legal obligations?

Aer Lingus said:

"It is a genuine mistake, a fundamental mistake on our part. We rectified it as quickly as we could. We have contacted the customers and given them the opportunity to re-book. To sell a business class flight for a fiver... that is a genuine mistake, people are going to know that there is something up. It is really a case of 'if it looks too good to be true, it probably is too good to be true'."

There is no doubt that the airline was mistaken by offering the fares (they usually go for 1775 euros each way, making the 5 euro fare a saving of 3545 euros), although it is not necessarily that obvious that it was a mistake to a customer, what with all the crazy promotional fares the airlines offer (many $1, I have seen a 1c).

The Irish Consumers' Association said:

"The offer was made, it was accepted by Aer Lingus. Consumers booked and paid to bind the contract."

There was a contract here, but it is not as simple as saying, they paid the contract has to be enforced. I checked out the terms and conditions on the Aer Lingus website to see what the contract would look like. Fortunately for Aer Lingus their terms do seem to allow them to cancel a reservation on notice to a customer (see clause 7.1), which they have given. I believe, and I am going on hazy reading the terms while waiting for my flight memories, that most airlines contain similar clauses.

If there was no clause in the terms and conditions allowing the airline to cancel the contract, Aer Lingus would have had to rely on the doctrine of mistake (see the infallible wikipedia article, it is a good general description at least). As it was a unilateral mistake (i.e. only Aer Lingus was mistaken as to the price, the customer knew accurately that the price was 5 euros) the contract would only be avoided if the customer was aware that Aer Lingus was mistaken (this is debatable as although the fares were low, very low fares are not unheard of) and was taking advantage of that mistake.

F&P: NZ abandoned

noreply@blogger.com (Mark) — Sun, 20 Apr 2008 10:32:00 +0000

It seems that Fisher and Paykel has linked their moving of manufacturing overseas with the recently signed free trade deal. Although to be fair they have just said this is one of many factors that have influenced their decision.

I never thought I would say it, but I actually agree with what Cullen said in reply. The free trade agreement does not effect the manufacturing environment in New Zealand, especially for a global exporter like F&P (who are competing in a global environment with Chinese labour anyway). What has been hurting is the unfriendly business environment of New Zealand created by a high exchange rate (a contribution of monetary and fiscal policy) and high tax. I don't think it can be said loud enough that the FTA with China is not a cause (it is a good thing and is suffering enough bad publicity as it is).

It is unfortunate for the government that the F&P decision comes just after the FTA was signed. It makes perfect ammunition for NZ First and takes the gloss off the FTA, especially in the xenophobic attitude that seems to be effecting middle New Zealand currently.

Opes Prime: What transpired?

noreply@blogger.com (Mark) — Sat, 19 Apr 2008 23:59:00 +0000

This article goes through the lead up to Opes Prime collapse and gives a good summary of why it fell over and what questions are still unanswered.

It is a little harsh on ANZ in my opinion, saying:

"Yet, knowing that Opes was dealing internally with highly questionable share transactions, knowing that its financial position was extremely precarious, and knowing that Opes has called in an insolvency specialist to examine its books, ANZ lent it $95 million."

To be fair to ANZ, although it probably did know all of this it most likely came to the conclusion that without further immediate assistance Opes was going to go under. ANZ had Deloitte in there and would have been closely following Opes from the time of its margin call and would have believed that with the extra loan to, and strict controls over, Opes it might trade through, this would be the best result for everyone (including ANZ).

It wasn't until after Opes collapsed that the more dodgy dealings would have become known to ANZ. At the stage it made the further loan of $95 million it was (according the public reporting) aware of margin calls not being made against some of Opes clients, but, almost perversely with the benefit of hindsight, this makes Opes position look slightly stronger. Opes was, to ANZ, in trouble but it had several clients it could make margin calls on, it would have looked like Opes was suffering a liquidity problem (i.e. not being able to pay its debts as they fall due) rather than a solvency problem (i.e. its liabilities exceeding its assets).

A far more serious issue then ANZ's last minute loan is raised in this article. This alleges that Opes was lending money to Tricom (another distressed, although not yet collapsed, finance company) in return for illiquid securities in full knowledge of ANZ and Merrill Lynch and the ASX in order to keep Tricom afloat.

Labour's core consituency

noreply@blogger.com (Mark) — Sat, 19 Apr 2008 10:35:00 +0000

The NBR has an article on John Key's statement of not selling any state owned assets during in his first term and say it is good politics but not good economics (with which I agree).

However, what I wanted to highlight is what appears to be Labour's core constituency (i.e. the person Helen Clark states is the reason why average New Zealand still loves labour). This person said:

“I currently have an interest free student loan. Last year, my partner and I purchased our first home using the Welcome Home loan scheme. [Our two daughters] attend pre-school with the support of the childcare subsidy, as I am currently studying a Bachelor’s degree in nursing. We receive a weekly support from Working for Families…We have also just signed up for KiwiSaver…”

They do appear to have accessed all parts of Labour's extended social welfare package (being interest free student loans, housing NZ subsidised home loans, childcare subsidy, working for families and Kiwisaver mark II). But would the average New Zealander actually benefit from all this. To do so you would need to:

for interest free student loan, have studied in New Zealand, have a student loan and be living in New Zealand;
for the Welcome Home Loan, be earning less than $85,000 as a household (i.e. if both of a couple are working can earn only $42,500 on average), this is above the average household income at June 2007 (of $67,973);
for the Welcome Home Loan, be buying a house less than $280,000 (this appears to be far below the average north island house price at November 2007);
for the childcare subsidy, have children under 5 attending childcare for more than 3 hours per week and be earning a low or middle income (and assuming this person is getting the largest childcare subsidy, which means they are earning the least, this means only $31.59 per child (assuming no disability) per week);
for working for families (assuming they are on the average household income at June 2007), they get $72 dollars per week;
for Kiwisaver, they get $1,000 kickstart and (assuming it all is going to one of the partners, given the other is studying and presumably earning nothing) and the government contributions.

This person seems to meet a very specific set of circumstances. If I was still in New Zealand, I would only have met the interest free student loans and the Kiwisaver contributions (assuming I had joined Kiwisaver). Yes Labour's policies have benefited people on low incomes with children, but is this really the average person?

And if this is an average person, can they afford to put $2,718 of their after tax $50,193.53 towards Kiwisaver?

This person does however seem to be Labour's core constituency. Labour's policies are clearly not aimed at me (not benefiting me or even keeping me on a good level - my tax was high, I was not getting any working for families just paying high taxes) hence one reason why I have moved to Australia. I think that this person Labour is talking about is not the average New Zealander and that Labour is completely missing the point. The electorate has moved on, roll on October / November.

US democratic party nomination drinking game

noreply@blogger.com (Mark) — Sat, 19 Apr 2008 10:32:00 +0000

All nerdy politics people should see this article for the US democratic debate drinking game.

I think you will probably be drinking more if you go for Hillary.

Australia v NZ: tax cuts

noreply@blogger.com (Mark) — Sat, 19 Apr 2008 00:29:00 +0000

This article sets out the likely extent of the upcoming Australian tax cuts.

They may seem rather 'Cullen-esc' but just remember that they come after several years of progressively lowering tax (see wikipedia) and will be followed by several more years of tax cuts, I think right up to the next election (I guess so that the parties can have another tax argument).

Now there have been hints that Cullen may offer progressive tax cuts if he comes back next year, but we (sorry, I mean you) will have to wait and see, and hope that they are anywhere close to Australia's, but with his insane fear of borrowing to do anything (despite the fact that borrowing more fairly allocates the cost of construction / investment to those who actually use the infrastructure / services and who may not yet have been born) so having to fund all capital expenditure out of surpluses I doubt it.