Short headline:  Thursday's Top 10 Tweet

Here's my Top 10 links from around the Internet at midday today.

As always, we welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz.

See all previous Top 10s here.

My must read today is #5 and #6 from Gareth Morgan on Auckland's crazy housing market.

1. 'All guns blazing' - US Federal Reserve Chairman Ben Bernanke was expected to try to calm markets nervous about the end of money printing.

Instead he came out 'all guns blazing' as BusinessInsider says and was even more specific about when the money printing would end.

It was no surprise then that the US 10 year bond yield -- the one everyone watches -- rose almost 20 basis points to 2.36%, its highest in 15 months. 

Now we'll see whether the markets can kick their addiction to free money.

And, more importantly, whether the developed world's biggest economy can manage a self-sustaining recovery.

I think it's going to be tough to get real growth when there's still so much debt weighing down US households and so little real income growth. 

Here's Business Insider with its interpretation:

Today, most were expecting Federal Reserve Chairman Ben Bernanke to attempt to soothe markets.

After all, volatility in the Treasury market, caused by uncertainties surrounding how soon the Fed will begin to taper the pace of its bond-buying program, has had earthshaking reverberations around the world. Instead, Bernanke and the Fed did just the opposite. The FOMC revised up its economic forecasts – implying a quicker economic recovery, meaning tapering is closer than previously assumed – and even laid out a roadmap for tapering, saying bond buying could be completely finished by mid-2014.

This development wasn’t even borne out of the discussion in the Q&A with reporters – Bernanke had it ready to go in his prepared remarks to launch the presser. Guns blazing.

“If the incoming data are broadly consistent with this forecast, the Committee currently anticipates that it would be appropriate to moderate the monthly pace of purchases later this year,” said Bernanke, referring to the FOMC’s newly-released macroeconomic projections. “And if the subsequent data remain broadly aligned with our current expectations for the economy, we would continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around mid-year.“

2. China's deepening cash crunch - FT reports this is not going away in a hurry, as some had hoped. Read the tone of the comments from the PRC's propagandists. It's all about tightening monetary policy.

Short-term interbank rates jumped more than 200 basis points to a record high of nearly 8 per cent for loans of one month or less, in the latest indication of how tight credit has become in China.

The main reason for the lack of liquidity has been the central bank’s reluctance to pump liquidity into the money market, wrongfooting banks that had expected Beijing would continue to support them with large cash injections.

Signalling that the cash crunch could persist for a while, the China Securities Journal, a major state-run newspaper, ran a front-page commentary saying China was at a turning point in monetary policy. “We cannot use as fast money supply growth as in the past, or even faster, to promote economic growth,” the newspaper said. “This means that authorities must control the pace of money supply growth.”

3. Now that's a tax evasion fine - FT reports Dolce and Gabbana have been fined 500 million euros for tax evasion. Reuters is not so sure, saying it could be 10 million euros. It's still a lot.

4. The problem in China - Further to #2 above here's the now very famous Charlene Chu from Fitch in a Bloomberg video talking about China's 'Minsky Moment'. HT Macrobusiness.

 

 5. Right on the money - Gareth Morgan's latest comment on the housing boom and the Reserve Bank's role in it is entirely accurate and useful. Housing supply is an issue, but so is financial and speculative demand.

It is a supply issue – but not supply of property, but rather supply of finance. And whether that supply is so high as to put the banks’ balance sheets at risk is beside the point. The damage is being done to the economy anyway as non-housing investment is shunned in favour of speculative demand for housing, demand that has nothing whatever to do with the demand for accommodation.

The problem with demand for property in New Zealand is one that has arisen as a legacy from a long history now of Reserve Bank prudential policy combining with selective tax policy to provide a toxic little no brainer for property investors. Put bluntly, it is the easiest way in town for people to make money – all they need do is gear up and the tax-free gains are, over time, sumptuous. All Kiwis know this and it is the national pastime.

6. 'Just buy houses' - Here's Part II of Gareth's comment on the latest housing boom. He's right.

Nowhere is the housing circus more entertaining to watch than in Auckland, our largest city and the giant sucking machine that’s pulling more and more New Zealanders north of the Bombay Hills as the jobs are there or nowhere.

So long as those desperadoes are in the market, forced to Auckland because of the job market and desperate and able to buy, courtesy of large dollops of credit courtesy of their banks, then it’s like babies to the slaughter insofar as an investor or property speculator is concerned.

I’ll have five houses please – it’s a certainty prices will rise, profits are all tax free, gearing available to amplify my gains – oh it’s all too much, why bother with the day job. And the more the merrier, this bubble is so much fun.

7. There are now more black Americans in prison than were enslaved in 1850 - This long and detailed piece from Newsweek is well worth a read.

8. Can you inhale calories - It seems you can, Slate reports, but it still makes you fat.

Public health officials worldwide are warning young people off the new trend of “smoking alcohol.” The user either pours hard liquor over dry ice or heats it, then inhales the vaporized alcohol. Some believe the process affords the inhaler a high without the calories of alcohol, but experts say there are still calories involved. Can you really inhale calories?

Yes. Inhaled alcohol has to travel through the bloodstream to make it from the lungs to the brain. Once it’s in the blood, the alcohol will be metabolized and deliver calories to your cells. Inhalation is, however, a slightly lower-calorie booze-delivery method than ingestion. When you drink, your stomach and liver break down a portion of the alcohol before it enters the bloodstream. The metabolized alcohol has caloric impacts but doesn’t contribute to drunkenness. Inhalation bypasses your digestive organs. The caloric savings of volatilizing hard liquor are minimal, though, because of its composition.

9. Will NZ join this tax avoidance crack-down on multinationals? - Here's the G8's plan.

10. Totally John Oliver on US immigration reform

The Daily Show with Jon Stewart
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Rick Bettle has resigned from the board of NZX-listed software company Diligent, two weeks before he is due to stand trial on charges of misleading investors in Dominion Finance.

Short headline:  Taking the profit out of crime Tweet

New Zealand’s new Anti-Money Laundering (AML) regulatory regime, taking effect from June 30, will help to take the profit out of crime, reduce the chances of New Zealand being involved in terrorism financing and enhance New Zealand’s reputation on the global stage, Reserve Bank Anti-Money Laundering manager Rob Edwards said today.

In a speech to an Anti-Money Laundering and Countering Financing of Terrorism seminar in Wellington, Mr Edwards said there were two key reasons the new AML regime is important.

"First, our AML regime is part of a co-ordinated international effort to tackle two worldwide problems: criminal activity that is made more attractive when the proceeds are able to be laundered, and the funding of terrorist attacks.

"The second purpose of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 is to maintain and enhance New Zealand’s international reputation for a sound and high-integrity business environment."

New Zealand has adopted the international Financial Action Task Force (FATF) standards for anti-money laundering.

"New Zealand cannot afford to be seen as a weak link in the chain of international efforts to tackle money laundering and the financing of terrorism," Edwards said.

"If FATF were to give New Zealand a poor AML rating at its next review (currently likely to occur in 2016), the consequences could be severe," he said.

Although New Zealand seemed far away from international terrorism, we were not immune from being involved in activities related to the financing of terrorism.

"Financing terrorism is a global activity and a serious global problem.

"Terrorists are able to take advantage of any AML weaknesses in any jurisdiction’s banking and money remitting systems, and many highly effective acts of terrorism have been able to be carried out with quite limited funding, literally on a shoestring budget. As a jurisdiction we need to have effective AML laws in place.

"And reporting entities need to be vigilant in adhering to those laws. It is not farfetched to suggest that one suspicious transaction report could help to prevent a future Bali bombing or Boston marathon-type event."

The Reserve Bank, the Department of Internal Affairs and the Financial Markets Authority are tasked with supervising entities under the Act and are well placed to begin their new role, Mr Edwards said. The purpose of this supervision is to check that firms have the systems in place to comply with their AML obligations, including detecting and reporting suspicious activity.

While the new regime beds in, the emphasis will be on the monitoring of compliance with the Act.

“We expect that our monitoring activity will alert us to any breaches that will be investigated and potentially result in enforcement actions.

“Supervision is a two-way street; willing and enthusiastic participation by industry will make the process more efficient and make the regime more effective,” Mr Edwards said.

Microsoft was in talks to boost its position in the mobile phone market by buying the devices business from Nokia but failed to seal a deal, according to reports.    

Short headline:  Govt banking business up for grabs Tweet

By Gareth Vaughan

The Government has issued a discussion document on its banking needs, suggesting it'll open its key banking contract, which has been held by Westpac since 1989, to a competitive tender process with a core transactional services contract on offer plus a series of sub-contracts.

This development comes after the Government said in 2010 it was considering making changes to its master banking arrangement with Westpac.

The discussion document has been issued by the Ministry of Business, Innovation and Employment (MBIE) and Treasury. They say they want to engage with the banking industry on the potential for establishing an "All-of-Government (AoG) banking services solution." Objectives include testing the market for core banking transaction services for the first time since 1989.

They're seeking feed back from banks on the scope of banking services provided to government, time scales for any AoG tendering process, and the benefits of establishing AoG banking service arrangements.

"The current core transactional banking services for government have been in place for over 20 years, over which time there has been considerable evolution in banking services, payment methods and settlement systems," the discussion document says.

"The primary contract governing the Crown’s banking arrangements is the 2004 Domestic Transaction Banking Services Master Agreement with Westpac Banking Corporation (the Master Contract). The Master Contract exclusively covers the core transactional banking services associated with the operation of government departments’ bank accounts for the purpose of processing domestic receipt and payment transactions."

"The requirements for government banking have changed considerably over time and the scope of the Master Contract is no longer sufficient to meet the current and future banking needs of government. Tendering for core transactional banking services under an AoG banking services solution would provide the opportunity to establish common shared, innovative and integrated banking service delivery models for government."

MBIE and Treasury suggest this would provide access to economies of scale, better value for money, process efficiencies, and better interaction for financial payments between government, business and taxpayers and ratepayers.

"In establishing an AoG banking services solution, government would be seeking to maximise opportunities to realise benefits from: 1) the innovation and flexibility of local and overseas banking service providers; 2) standardising and streamlining agency and public interactions through payables and receivables; and 3) unlocking value currently trapped in disparate, inefficient and manual processes."

Pre-conditions include a credit rating of at least A-

The paper sets out pre-conditions including that potential AoG transactional banking service providers must directly participate in the settlement systems used to exchange inter-bank payments from customer transactions, which are operated by Payments New Zealand Limited.

Payments NZ is owned by ANZ, ASB, BNZ, Westpac, Kiwibank, TSB Bank, HSBC, and Citibank.

Potential providers must also have a minimum long-term credit rating of at least A-, or equivalent, from a registered credit rating agency.

The government agencies that would be eligible to participate under any AoG banking services arrangement include:

• Public Service departments

• State Service agencies

• State Sector agencies

• Approximately 2,500 schools

• The wider Public Sector including regional, district and city councils.

A panel of providers

The paper says the Government's preferred option would be ring fencing core transactional banking services currently under the Master Contract as their own AoG given the Crown’s cash management requirements, the specific banking requirements of a number of Public Service and non-Public Service departments and other complexities.

"Furthermore, we are of the view that all such departments should have the same provider for these banking services. In tendering the remainder of the sub-categories of banking services under an AoG solution, we envisage the establishment of a panel of providers for each sub-category. This would enable government to access and realise the benefits of innovation and flexibility from a range of local and global banking service providers."

"A panel arrangement, if viable, would also give government agencies optimal choice in respect of quality of service, value, price and capability, all on standardised terms. Alternatively, another viable option is to structure some sub-categories of banking services by clusters or sectors. For example, tertiary sector, councils, schools etc."

The paper lists core transactional banking services as; bank clearance procedures, direct debits/direct credits, cheque cashing facilities and desktop banking. It lists banking service sub-categories as; merchant services, purchasing cards, transactional management systems, over-the-counter services, trust accounts, schools package, international banking, working capital and a Ministry of Social
Development Stored Value Payment Card.

"Alternatively, another viable option is to structure some sub-categories of banking services by clusters or sectors. For example, tertiary sector, councils, schools etc."

MBIE and Treasury note that the discussion paper is not a request for proposal, which they plan to issue at a later date. They say the length of any AoG contract for core transactional banking services would be at least five years. The contract term for all other sub-categories would also be for a minimum of five years, potentially including two extension periods of two years, to encourage ongoing competitive tension.

Ultimately they're aiming to award an AoG banking services contract in May or June 2014. Responses to the discussion document are sought by 10am, on July 4.

A foreign animal part has been found in imported palm kernel on a Bay of Plenty farm in a major biosecurity breach.

Sir Mervyn King said 'It is not in our national interest to have banks that are too big to fail, too big to jail or simply too big'

Telecom is exploring the possibility of letting its home broadband customers watch English Premier League football matches for less than the usual cost of $150 per season.

At some point the government will have to stop meddling in the markets and LIBOR will carry on rising. In these charts you can clearly see the effect funding For Lending has had on the LIBOR rate. The LIBOR rate is now so low there is nothing left that the government can do to lower it, the question is can they keep it this low? Will mortgages rates rise? If the answer is no rates will not rise, then asset values will rise until they reach a peak. At this point rates will not be able to go lower and prices will not be able to rise.

Just throwing this question out there, but we hear of anti-TPTB people dying/suiciding, but which TPTB/elite folks have snuffed it?

Three out of five broking firms involved in the Mighty River Power float don't expect the company to be trading above its $2.50 issue price in a year's time.Firms involved in the initial public offer of Mighty River Power had been...

His reporting will be missed. To those on the front lines, run it cool.

The Federal Reserve sketched a slightly brighter picture of the US economy this year and next, a sign it is moving closer to slowing its bond-buying programme.

The New Zealand dollar fell to a week low as the Federal Reserve signalled an end to its quantitative easing programme which has debased the greenback.The kiwi slid to 78.49 US cents, the lowest since June 12. The local currency...

A British stunt double for actor Angelina Jolie has sued News Corporation alleging the media company hired private investigators to access her mobile phone voicemail messages to seek information for news stories.

The Federal Reserve has today signalled that it's moving closer to slowing its bond-buying program, which is intended to keep long-term interest rates at record lows.Chairman Ben Bernanke said the Fed could start scaling...

Short headline:  NZ$ slammed after Fed announcement Tweet

By Dan Bell

The NZDUSD has been slammed down to 0.7905 this morning, post the US Federal Reserve interest rate (FOMC) meeting.

The NZDUSD traded to an overnight high just shy of 0.8050 immediately before the FOMC decision, only to be smashed to a 0.7860 low post FOMC.

The Fed mentioned that the downside risks to the economic outlook and labour market have diminished, and that they will maintain its current USD$85 billion a month in bond purchases with no indication it would scale back.

In fact, the FOMC even mentioned the possibility they could increase the level of bond purchases if conditions dictate this course of action.

If the FOMC’s economic forecasts prove correct, then they will start to taper (not stop) their bond purchases towards the end of 2013. However, they do not expect to raise interest rates until some time in 2015!

The AUDUSD traded to 0.9285 – a level last seen in September 2010. The NZDAUD touched 0.8500, a 4 ½ year high!

Global equity markets are lower across the board.  The US indices are down circa 1.3%, with smaller losses in the other markets.

Gold prices plunged 1.2% to USD$1350 an ounce overnight. Oil prices fell 0.3%.

The NZD opens at 0.7905 USD, 0.8500 AUD, 0.5945 EUR, 0.5105GBP, & 76.05 JPY.

NZ GDP balance will be released at 10:45am.

Australia’s RBA bulletin will be released at 1:30pm, followed by Chinese Manufacturing figures at 1:45pm.

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Dan Bell is the senior currency strategist at HiFX in Auckland. You can contact him here »

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The New Zealand dollar lost ground against the greenback this morning after the United States central bank delivered an upbeat statement on the condition of the world's largest economy.