Financial Armageddon!!

[eri]

Investors’ underlying fear seems to be that the developed world is slipping into a deflationary spiral;

hence the falls in commodity prices and a sharp drop in expectations of inflation, as measured by the Treasury-bond market.

The recent weakness in the euro and the yen may be a sign that those regions are exporting deflation to the rest of the world, as their exporters cut prices to seize market share.

Deflation can cause severe pain in the corporate sector; a further sign of trouble is that the spread (or excess interest rate) paid by the riskiest bond issuers has widened by one-and-a-half percentage points since June.

This deterioration is seen by Julien Garran, an analyst at UBS, as the “fourth horseman of the apocalypse”, signalling that deflation is on its way. If investors lose faith in the Fed’s ability to rescue them from that fate, the recent market weakness may be only the beginning.

http://www.economist.com/news/finance-and-economics/21625825-fears-deflation-may-lie-behind-recent-weakness-bears-no-picnic

[Perry]

Consumer Confidence Hits Year Low
Niko Kloeten
20/10/2014

Consumer confidence has dropped to its lowest level in 12 months on
concern about the future health of the economy. Although the current
conditions index inched up for the second consecutive month, the
future conditions index fell seven points to a 13-month low.

The three forward-looking indicators, which measure expectations
regarding the economy in one and five years' time, and wealth a year
out, all dropped seven or eight points. The weakest question related
to households' expectations regarding the economy in five years' time,
which dropped to its lowest level since October 2012.

[muppet]

Blame the cows: kiwi dollar may stumble



Once billed as the hottest currency trade this year, New Zealand's dollar is set to stumble, tripped up by spilled milk.
"Since peaking in February this year, international dairy prices per Fonterra Global Dairy Trade (GDT) auction have fallen by almost 50 percent," Morgan Stanley said in a note Tuesday, noting that dairy products are New Zealand's largest export, accounting for 26.4 percent of the total.
"Due to New Zealand's specialization in whole milk powder (WMP) exports to China, we expect the fall in price and import demand to weigh on the New Zealand dollar," the note said.

More at

http://www.cnbc.com/id/102130262

[muppet]

Two paragraphs from the above article

Morgan Stanley forecasts the kiwi will fall to $0.76 by year-end and $0.67 by the end of next year.

and

ANZ expects the kiwi to fetch $0.78 by year end, falling toward $0.73 by the end of next year.

I wonder how that will impact on petrol prices?

[JBM]

Two paragraphs from the above article

and

I wonder how that will impact on petrol prices?

Depends on the Brent oil price at the time in NZD .... I'd be surprised if we don't see higher Gas prices on the back of lower NZD ...hoping this also means a lower NZD/AUD for us guys exporting to aussie

[amado]

My take on it:

The big picture is deflationary, but macro-economic uncertainty remains due to central bank intervention. This creates uncertainty in asset prices which will inflate but will always be in danger of deflating if / when central banks cease their support of [post] developed economies [all developed economies want to go Japanese].

So one has to diversify; have some assets, have some liquidity, don't over-extend/ leverage. Also diversify your savings in various currencies, dollar, US dollar, and of course a little gold.

Will an inflationary cycle kick in? Not likely any time soon.

[skid]

Looks like the end of the US feds Quantitative easing (easy money)--Now the real test will be how things will hold up on the sharemarket when the next scare happens (now that the parachute has been removed from the US)

That ugly word (deflation) would bring about some dark times for most of us asset owners--especially ones with debt

[eri]

might as well go here

An ignorant mind is precisely not a spotless, empty vessel, but one that’s filled with the clutter of irrelevant or misleading life experiences, theories, facts, intuitions, strategies, algorithms, heuristics, metaphors, and hunches that regrettably have the look and feel of useful and accurate knowledge.

This clutter is an unfortunate by-product of one of our greatest strengths as a species.

We are unbridled pattern recognizers and profligate theorizers.

Often, our theories are good enough to get us through the day, or at least to an age when we can procreate.

But our genius for creative storytelling, combined with our inability to detect our own ignorance, can sometimes lead to situations that are embarrassing, unfortunate, or downright dangerous—especially in a technologically advanced, complex democratic society that occasionally invests mistaken popular beliefs with immense destructive power (See: crisis, financial; war, Iraq).

As the humorist Josh Billings once put it, “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”

http://www.psmag.com/navigation/health-and-behavior/confident-idiots-92793/

[skid]

might as well go here

An ignorant mind is precisely not a spotless, empty vessel, but one that’s filled with the clutter of irrelevant or misleading life experiences, theories, facts, intuitions, strategies, algorithms, heuristics, metaphors, and hunches that regrettably have the look and feel of useful and accurate knowledge.

This clutter is an unfortunate by-product of one of our greatest strengths as a species.

We are unbridled pattern recognizers and profligate theorizers.

Often, our theories are good enough to get us through the day, or at least to an age when we can procreate.

But our genius for creative storytelling, combined with our inability to detect our own ignorance, can sometimes lead to situations that are embarrassing, unfortunate, or downright dangerous—especially in a technologically advanced, complex democratic society that occasionally invests mistaken popular beliefs with immense destructive power (See: crisis, financial; war, Iraq).

As the humorist Josh Billings once put it, “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”

http://www.psmag.com/navigation/health-and-behavior/confident-idiots-92793/

Like the ole saying in the Scottish bomb squad''we know just enough to get ourselves killed''

[eri]

China's roaring economy for years has pulled much of the rest of the world with it, soaking up oil, iron ore and other commodities from developing countries and autos and luxury goods from Europe.

But its role as a global engine is fading as its economy slows - and many other nations, in the view of economists, will feel the pain.

An Associated Press survey of 30 economists has found that 57 percent of them expect China's decelerating economy to restrain growth in countries from Brazil and Chile to Australia and South Korea.

A notable exception is the United States, which the economists see as largely insulated from China's troubles.

China's once-explosive growth has slowed in part because of its government's efforts to restrain its speculative real estate sector and shift its economy toward consumer spending.

.....

Oil prices have fallen more than 25 percent since July, partly because China is using less of it and thereby reducing global demand for oil.

http://www.nzherald.co.nz/business/n...ectid=11352325

[eri]

helps to explain why voter unhappiness sounds so similar across the rich world. Your columnist has covered elections on four continents, and the same themes keep cropping up
...
In rich country after rich country, under governments both of the left and of the right, the biggest worry for voters is that middle-class incomes are stagnating and the job-for-life is dead. Politicians instinctively blame their domestic opponents’ wicked or foolish policies.
...
But let political leaders everywhere tell their publics the truth: the years of easy post-war growth are gone, replaced by competition that cannot be wished away, and so must be met head-on—and ideally harnessed. That will take hard work and new ideas. Time to wake up.

http://www.economist.com/news/united...-can-be-wished

[Perry]

Low Inflation Does Whaaaat???

Economic Conditions A 'Challenge' - English
20 November 2014

Falling dairy prices and low inflation have made the Government's goal of a surplus this year a challenge,
Finance Minister Bill English says. The May Budget forecast a surplus for the 2014-15 year of $372 million
but since then dairy prices have slumped to a five-year low while inflation has fallen to only 1 per cent,
right at the bottom of the Reserve Bank's range.

But Green Party co-leader Russell Norman said: "No finance minister in a generation has racked up seven
consecutive deficits. They have tried to paint themselves as good economic managers but National has,
in just over six years, racked up $55 billion in extra debt, equivalent to over $14,000 for every kiwi."

English said that New Zealand remained on track for solid economic growth, more jobs and rising incomes
over the next few years. "Businesses and consumers are confident about the future," he said.

Can some erudite forumite please explain how high inflation is
necessary to achieve a current account surplus? Pretty please.

[Austrokiwi]

Economic Conditions A 'Challenge' - English
20 November 2014



Can some erudite forumite please explain how high inflation is
necessary to achieve a current account surplus? Pretty please.

The problem is relative. In modern monetary systems there has to be a normal level of inflation. 2-3 % is the usual level. Most of the world is experiencing 0-1% inflation. The article doesn't actually mean"high" inflation. It actually refers to Normal inflation. NO one has had the guts to say it yet; but since the GFC the world has probably been in a slow burn depression

[Perry]

That said, Austro, how on earth does
'high inflation' reduce a country's debt?
Or make it difficult to reduce its debt?

Because, if high inflation does, in some
perverse way, help reduce a nation's
debt, does that not create a political
incentive for governments to foster
inflation, to the detriment of the gen-
eral populace?

[Austrokiwi]

You are mistaken in calling it "high". For the economy just to stand still the inflation rate needs to be around 2-3% any lower than that and the economy actually contracts: less jobs and most importantly, for this discussion, the speed money moves through the economy drops below the levels to maintain the gvts income. Inflation when its too low leads to unemployment and business closures. So I repeat the article is stating we need a return to normal inflation not as you say high inflation. High inflation starts at levels above 3% per annum.

Its interesting to see how national has been criticised for increased debt while people forget that When times were good th left wing government spent up large and decreased NZs ability to deal with a crisis Heres an loose analogy:

Based on food: High inflation is like obesity there is just too much food being eaten and not enough calories are burnt. Normal inflation: the food intake matches the energy demands( no weight gain) Low inflation = to0 little intake unhealthy weight loss sets in.