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How not to solve housing

Good morning! ScoMo yesterday laid the groundwork for yet another missed target (opening Australia's borders by 31 October), stating that: "It's not safe right now to open up our international borders. Around the world, COVID-19 is still rife… we'll keep those borders closed for as long as we have to."

What are the odds that ScoMo – a recipient of two doses of Pfizer – travels internationally before the borders are opened for the rest of us plebs? 🤔

Market Wrap

Yep, another record high...

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Note: Brent oil, gold bullion and iron ore prices are the second futures contract.

We're going to have to stop reporting record highs for the S&P500 (+0.33%) because when it's already at a record, there's about a 50% chance it sets another one...

Conditions improving: NAB's business survey showed business conditions in Australia – hiring, sales and profits – climbed to a record high in March. Business confidence fell slightly but remains well above average.

China's unwinding: In March, China's total social financing (TSF) rose to 3.34 trillion yuan from 1.71 trillion yuan in February. March 2020 was the first big coronavirus stimulus month in China, with the year-to-date flow of TSF in 2021 now down 8% from 2020 as that stimulus slowly unwinds.

Zipping up: Buy now, pay later (BNPL) player Zip finished up 16.95% yesterday after a trading update showed its revenue jumped by 80% in the March quarter (annualised). Arguably more importantly, it seems to be having some success at cracking the huge debt-addicted US market, where revenue rose 188%. BNPL is a business contingent on regulators turning a blind eye (arbitrage) – but why not make hay while the sun shines, amiright?

Bad news for J&J: Shares of Johnson & Johnson fell 1.34% after the US paused the use of its COVID-19 vaccine over rare blood clot cases. The J&J vaccine is an adenovirus vector – the same tech used in the much-maligned AstraZeneca vaccine.

Econ Wrap

How not to solve housing

Ignore supply at your peril.
Ignore supply at your peril. Medium/Brendon Harre

Norman Gemmell, a former Chief Economist at NZ Treasury, had an interesting opinion piece this week on New Zealand's recently announced housing policies.

TL;DR: Gemmell calls the policies a "shambles", as they:

  • have wide-ranging conflicting objectives;
  • will distort incentives, such as shifting investors from competing with first-time buyers for existing properties to competing with them for new properties;
  • implement a back-door capital gains tax, which is "less transparent and coherent than a policy designed to tackle the problem head-on would be"; and
  • do nothing to deal with the real issue of "supply, supply, supply".

He's right: There's more political pay-off to stimulating demand over supply, so that's what governments tend to do – but they only make the affordability problem worse. First-home buyer schemes, for example, "merely raise demand without incentivising supply". Unless New Zealand does more than pay lip service to housing supply, its policies will do nothing to alleviate its high house prices.

Tech Wrap

The global chip supply crunch

The problem might be self-inflicted...
The problem might be self-inflicted... Dave Granlund/Facebook

US President Biden and top White House advisors met virtually with 19 CEOs Monday to discuss the global chip shortage. Biden – who seems to define infrastructure differently to everyone else on the planet – wants some of his $US1.9 trillion infrastructure plan to be used on building domestic US semiconductor manufacturing.

Stepping back: Just about everything uses semiconductors these days. Apple recently had to delay the release of its next MacBook Pro and iPad Pro. General Motors and Ford both temporarily closed down auto plants while waiting for supplies.

Self-inflicted?: Huawei's Chairman Eric Xu said the shortage is due to US sanctions on China, with companies – especially in China – stockpiling semiconductors. According to Xu, "In the past, companies were barely stockpiling, but now they are building up three or six months' worth of inventory... and that has disrupted the whole system."

Prices to rise: 'Onshoring' chip production to avoid the risk of supply chain failures – whether due to sanctions or disasters – will require large upfront investments. That will increase production costs at the same time as demand is spiking due to low interest rates and pent-up pandemic spending, which could lead to higher prices for just about everything.

The Wrap Up

  • Novavax reported that production of its COVID-19 vaccine was behind schedule due to supply shortages. It had previously said 150 million doses per month could be achieved by May or June but that's now been pushed back by a few months to September. Australia has an order for 51 million doses of Novavax.
  • There are solid rumours that US Treasury Secretary Janet Yellen will not name China as a currency manipulator in her first semi-annual foreign exchange report. A cooling of trade tensions, perhaps?
  • Australia's political leaders agreed to create "an intergovernmental agreement to facilitate greater data sharing between all levels of government". That can't be good.
  • Japan approved a plan to release more than one million tonnes of contaminated water from the destroyed Fukushima nuclear plant into the sea. China is not happy.
  • Ant Group, the world's largest fintech company, was ordered to become a financial holding company, subject to a range of regulation that will make it more like a bank. Goodbye, innovation.
  • More people should get their news from the Wrap rather than the Book – a new paper found that: "Those who used Facebook as an additional source of news in any way were less likely to answer COVID-19 questions correctly than those who did not."