Archive for January 2008
We’ve previously talked quite a bit about the issues around the Warehouse case (here,here,here,here,here,here). The Commerce Commission pretty much set a new record in how many times they delayed their original decision. At the end of last year the high court overturned the Commission’s decision clearing the way for Woolworths and Foodstuffs to try and takeover The Warehouse.
Today the Com Com has been cleared to appeal the decision. While I think it’s fairly obvious that I think a takeover should happen, that is neither here nor there. Due process must be followed and the Com Com has a right to appeal (even though I think it is a huge waste of resources!! but hey, the Com Com has to justify it’s existence some how….). After letting this drag on for soooo long I am glad the high court wants the hearing to happen next month. The Com Com’s request to have the hearing put back till April or May is ridiculous. This saga has gone on for long enough and needs to be resolved one way or the other. Investors need certainty and this fiasco will no doubt make firms think twice about mergers in the future when they consider the protracted process they may be put through, and that is not a good thing .After all, the bankers need to pay for their champagne somehow
This article came out at 9.30am stating that the New Zealand dollar was going to test $US0.80 again.
Even with an positive surprise in the merchandise trade figures, this is what happened:
Macro-man notices a similar trend with Economist magazine covers.
Update: If anyone wonders why the dollar is falling, it is because of concerns in the US (we are a carry trade currency, so if something goes wrong in the US people sell our currency and buy US dollars – crazy huh) about some bond issuers.
As the market expected the Fed cut its Federal Funds rate to 3.0% (down 50 basis points), a full 125 basis points lower than it was at the last meeting. In the accompanying statement they touched on all the issues that they have previously complained about: Weak housing market, softening labour market, and the erratic credit market. The main issue for the Fed appears to be liquidity, as the idea of a financial accelerator comes into play.
They did also mention inflation – they said that they expect it to moderate. However, any upside shocks on the inflation front could cause concern for the Fed.
On the GDP side the market received a downside surprise, with a growth estimate for the December quarter of 0.6% (this is equivalent to approximately 0.15% quarterly, seasonally adjusted growth). A poor turnout for residential investment and a strong de-stocking in inventories were the main driver of this easing in growth. A good description of the data is given by Econbrowser.
What does this mean for New Zealand? Well our dollar jumped half a cent against the US$ as the yield gap rose, we are now pushing $0.79US again. The market didn’t seem terribly phased by the GDP figure, given underlying ‘strength’ in consumption and exports. As a result, commodity prices should hold up at least a little longer
Yesterday John Key delivered the National Party’s new plan for youth. I leave commenting on the many social issues related to the plan to others with who are better equipped to discuss whether his ideas will work. The thing that bothered me was when I was watching the news last night and they mentioned that opponents are labeling John Key’s plan for 16 and 17 year olds to not be able to receive a benefit if they are not working or attending a course that the government will pay for.
I don’t see what’s wrong with this. I’m not old enough to know what went wrong with the working for the dole scheme and why it has such dirty connotations in New Zealand, but on the face of it I don’t have problem with the idea. I have absolutely no problem with a welfare system, but it’s a safety net. It is there for people who can’t work for various reasons and people who are transitioning between jobs. Maybe it’s just my terrible upbringing where my parents told me that if you want something in life you have to work for it combined with that gem of a saying in economics that there is no free lunch, but I have no issue with people taking courses to receive their benefit. My sister was once dating a guy who was 18 and on the dole. He was making absolutely no effort to do anything with his life, he just played American football and thought it was perfectly normal for him to cruise along doing nothing while the government supported him. I realize (and hope) that he doesn’t represent all young people on the dole and I don’t want to stigmatize the welfare system, I just don’t see what the problem is with requiring people who are able to, to give something back to society in return for the support they receive from it?
Again, I wasn’t around when New Zealand had a work for the dole scheme so maybe I’m missing something here, I just don’t understand why there is a stigma being attached to requiring young people who can, to contribute if they are going to receive welfare.
Apologies for the rant
Their policy analysis that rich people will restructure their activities to get tax benefits in a way that poor people cannot seams relatively sensible. I don’t claim to know anything about the the tax implications of Kiwisaver so I’m willing to trust them on that. This isn’t the only way that rich people can take advantage of the tax system in NZ. Last time I checked to top personal tax rate in NZ was much higher than the company tax rate, and businesses get gst back which gives people the incentive to structure as much under their company as they can. Incentives are king, this kind of behavior is nothing new.
What does bother me about this article is that they conclude that Kiwisaver has not “inspired new saving but rather a “reshuffling” of existing savings” based upon 598 completed mail surveys they sent out. Read the rest of this entry »
The graph shows the frequency of use of the word ‘recession’ in blog posts since the 2nd of August – a few days after the subprime mortgage market woes began to drag on market confidence. January has been a ripper of a month for recession talk, with the US Fed cutting rates in a move that smells of panic, and the US government attempting to push through ‘stimulatory packages’.
The world seems scared of recession, should New Zealand be?
As everyone knows, Radiohead recently released their album ‘In Rainbows’ online for a nominal sum. It was suggested to me today that perhaps that is the future of the music industry and record labels will soon be obsolete. I agree that a release similar to Radiohead’s could be a good move for some groups, but I don’t think it will signal the end of labels as we know them.
What do the Reserve Bank and eateries have in common? Both implement rule based policies instead of discretionary policies and both suffer criticism from their clientèle for doing so even though it is in the clients ultimate interest.
I noticed this today when I went to get some food for lunch. A man in front of me was trying to get cash out, when there is a sign that says “no cash out” at the counter. The man was irritated by this rule, he wanted cash and there was cash in the till. The service person tried to explain to him that if they let people get cash out, then they ran out of change in the counter, which causes delays later in the day – furthermore, if they give him cash they run the chance that other people may begin expecting that they can get cash out, and employees would feel more obliged to. As there was a cash machine just outside, the cost of getting the cash somewhere else was very low for the man, however the delays later in the day would have been costly for both the firm and the consumers involved. In this case, the rule improved the social outcome – any deviation from this rule may change peoples beliefs and lead to a case where most people are worse off.
One thing that gets to me is the fact that people from both sides of the political spectrum love to avoid costs. As economists pride themselves in discussing the opportunity cost associated with any given policy or action, we end up being attacked by both sides (Update: Including psychologists it seems. Dang I thought they were the one social science that understood us )
However, the way both sides attack economists is different, equally irritating but different.
In houses all around the world women are cleaning and doing chores right now while their husbands sit in front of the TV. Depending upon which you are it’s either a pretty sweet arrangement, or a manifestation of the oppressive patriarchal regime into which you were born (or something more moderate and boring sounding in between, I guess). Now Bryan Caplan has stirred up a hornets’ nest with a post supporting the couch jockeys:
Look at the typical bachelor’s apartment. Even when a man pays the full cost of cleanliness and receives the full benefit, he doesn’t do much. Why not? Because the typical man doesn’t care very much about cleanliness. When the bachelor gets married, he almost certainly starts doing more housework than he did when he was single. How can you call that shirking?
The Economist laments the death of the music industry as we know it:
the results from 2007 confirm what EMI’s focus group showed: that the record industry’s main product, the CD, which in 2006 accounted for over 80% of total global sales, is rapidly fading away. In America, according to Nielsen SoundScan, the volume of physical albums sold dropped by 19% in 2007 from the year before… More worryingly for the industry, the growth of digital downloads appears to be slowing.
So perhaps it’s time for the industry to develop a new business model, but what are its options? Read the rest of this entry »
As everyone expected the OCR is unchanged at 8.25%. The statement was decidedly neutral, stating that everything is happening inline with their December forecasts, however uncertainty has increased. As they did not state whether it is downside or upside risk they are concerned about (we cannot just presume it is downside risk), any change in their hawkish stance in December relies on our belief of the risk preference of the Bank.
If the RBNZ is risk averse, then they are less likely to lift rates in the future, if they are risk neutral they are just as likely to lift rates in the future.
It is important to note that they said they will be monitoring commodity prices – this implies that the ANZ commodity price index will be especially important over the coming months.
There has been a lot of discussion around the internet about whether and what type of fiscal stimulus is appropriate in the US. That is not the issue I am going to discuss here. This is a New Zealand blog, and as a result, I’m more interested in the claim that Michael Cullen will be able to intervene in the economy to save us from any impending doom.
I’m not entirely convinced that Dr Cullen will be able to save us in the case of an imminent economic collapse, and here is why:
Over at the Big Picture they are discussing how silly the decoupling thesis is (the idea that that world economic growth now functions separately from US economic growth). Near the end they mention ten things that seemingly intelligent people have said, that have turned out to be complete rubbish, namely:
- The Yield Curve no longer matters
- Earnings at an unusually high % of GDP are sustainable
- The Business Cycle has been defeated
- Ignore sentiment readings, the population is just upset about Iraq
- Real Income gains are irrelevant
- Mean reversion no longer applies
- Supply side tax cuts pay for themselves
- Dow Theory is a quaint antiquity
- The (so-called) Fed Model “proves” equities are significantly undervalued
- Despite commodity prices, there is no Inflation.
Economists are often seen as cold and calculating by the public. I have personally been referred to as a ‘deranged sociopath’ for a post I made on this blog. Today’s post by Eliezer at Overcoming Bias (yeah, it’s my blog of the moment) reassures me that we economists really do have the moral high ground
“What!” you cry, incensed. “How can you gamble with human lives? How can you think about numbers when so much is at stake? So much for your damned logic! You’re following your rationality off a cliff!”
You know what? This isn’t about your feelings. A human life, with all its joys and all its pains, adding up over the course of decades, is worth far more than your brain’s feelings of comfort or discomfort with a plan. Does computing the expected utility feel too cold-blooded for your taste? Well, that feeling isn’t even a feather in the scales, when a life is at stake.
Altruism isn’t the warm fuzzy feeling you get from being altruistic. If you’re doing it for the spiritual benefit, that is nothing but selfishness. The primary thing is to help others, whatever the means. So shut up and multiply!