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Showing posts with label New Zealand. Show all posts
Showing posts with label New Zealand. Show all posts

Friday 6 May 2022

The Fed Chair must acknowledge that free money has made asset prices unsustainably high

Gillian Tett in The FT 


This week financiers’ eyes have been firmly fixed on the Federal Reserve. No wonder. On Wednesday the US central bank raised rates at the most aggressive pace for 22 years, as Jay Powell, Fed chair, finally acknowledged the obvious: inflation is “much too high”. 

But as investors parse Powell’s words, they should spare a thought for a central bank on the other side of the world: the Reserve Bank of New Zealand. 

In recent years, this tiddler has often been an unlikely harbinger of bigger global trends. In the late 20th century, for instance, the RBNZ pioneered inflation targeting. More recently, it embraced climate reporting ahead of most peers. 

Last year, it started tightening policy before most counterparts. And this week it went further: its latest financial stability report warns of a “plausible” chance of a “disorderly” decline in house prices, as the era of free money ends. 

Unsurprisingly, the RBNZ also said it hopes to avoid a destabilising crash. But the key point is this: the Kiwi central bankers know they have an asset bubble on their hands, since property prices have jumped 45 per cent higher in the last two years and “are still estimated to be above sustainable levels”. This reflects both ultra-low rates and dismally bad domestic housing policies. 

And it is now telling the public and politicians that this bubble needs to deflate, hopefully smoothly. There is no longer a Kiwi “put” — or a central bank safety net to avoid price falls. 

If only the Fed would be as honest and direct. On Wednesday Powell tried to engage in some plain speaking, by telling the American people that inflation was creating “significant hardship” and that rates would need to rise “expeditiously” to crush this. He also declared “tremendous admiration” for his predecessor Paul Volcker, who hiked rates to tackle inflation five decades ago, even at the cost of a recession. 

However, what Powell did not do was discuss asset prices — let alone admit that these have recently been so inflated by cheap money that they are likely to fall as policy shifts. 

A central bank purist might argue that this omission simply reflects the nature of Powell’s mandate, which is to “promote maximum employment and stable prices for the American people”, as he said on Wednesday. In any case, evidence about the short-term risk of asset price falls is mixed. 

Yes, the S&P 500 has dipped into correction territory twice this year, with notable declines in tech stocks. However, the American stock indices actually rallied 3 per cent on Wednesday, after Powell struck a more dovish tone than expected by ruling out a 75 basis point rise at the next meeting. 

And there is no sign of any fall in American property prices right now. On the contrary, the Case-Shiller index of home prices is 34 per cent higher than it was two years ago, according to the most recent (February) data. 

However, it beggars belief that Powell could crush consumer price inflation while leaving asset prices intact. After all, one key factor that has raised these prices to elevated levels is that the Federal Reserve’s $9tn balance sheet almost doubled during the COVID-19 pandemic (and has expanded it nine-fold since 2008.) 

And, arguably, the most significant aspect of the Fed’s decision on Wednesday is not that 50bp rise in rates, but the fact that it pledged to start trimming its holdings of mortgages and treasuries by $47.5bn each month, starting in June — and accelerate this to a $90bn monthly reduction from September. 

According to calculations by Bank of America, this implies a $3tn balance sheet shrinkage (quantitative tightening, in other words) over the next three years. And it is highly unlikely that the impact of this is priced in. 

After all, QT on this scale has never occurred before, which means that neither Fed officials nor market analysts really know what to expect in advance. Or as Matt King, an analyst at Citibank, observes: “The reality is that tightening hasn’t really started yet.” 

Of course, some economists might argue that there is no point in the Fed spelling out this risk to asset prices now, given how this might hurt confidence. That would not make Powell popular with a White House that is facing a difficult election, Nor would it help him achieve his stated goal of a “soft” (or “softish”) economic landing, given that consumer sentiment has wobbled in recent months. 

But the reason why plain speaking is needed is that a dozen years of ultra-loose policy has left many investors (and households) addicted to free money, and acting as if this is permanent. Moreover, since the Fed has repeatedly rescued investors from a rapid asset price correction in recent years — most recently in 2020 — many investors have an innate assumption that there is a Fed “put”. 

So if Powell truly wants to emulate his hero Volcker, and take tough measures for long-term economic health, he should take a leaf from the Kiwi book, and tell the American public and politicians that many asset prices have been pumped unsustainably high by free money. 

That might not win him fans in Congress. But nobody ever thought it would be easy to deflate a multitrillion dollar asset price bubble. And the Fed has a better chance of doing this smoothly if it starts gently and early. Wednesday’s rally shows the consequences of staying silent.

Wednesday 27 March 2013

Cricket, Physics and the Laws of Probability



In the recently concluded test match between New Zealand and England an event occurred which in this writer's opinion once again questions the predictability of an lbw decision as a method of dismissing a batsman and especially the DRS system which is being touted as a scientific fact. On the last ball of the 99th over in the England second innings the ball, to quote Andy Zaltzman in Cricinfo:

The ball ricocheted from Prior's flailing bat/arms/head, and plonked downwards, in accordance the traditions of gravity, onto the timbers. It did not brush the stumps. It did not snick the stumps. It did not gently fondle the stumps. It hit the stumps. The bails, perhaps patriotically mindful of their origins in early cricket in England all those years ago, defied all the conventional principles of science by not falling off.

If the stumps and bails had behaved as cricketing precedent and Isaac Newton would have expected them to behave, England would have been seven wickets down with 43 overs left.

If the ball having hit the stumps fails to dislodge the bails then doesn't it introduce even more uncertainty into a DRS based lbw decision which its supporters claim to be irrefutable evidence? This incident requires that in an lbw appeal the DRS should not only predict whether the ball, if not impeded by the batsman illegally, would have gone on to hit the stumps but also if it would dislodge the bails.

Supporters of the DRS rely on the infallibility of scientific laws to promote their support for technology. Then, like true scientists they should admit the weakness of their science whenever an anomaly appears. Assuming for a moment that these scientific laws are infallible then how do they explain the reprieve that Prior obtained? Also, shouldn't the DRS have been used to declare Prior out since the ball had actually hit the stumps?

Hence I would like to make a suggestion which may unite the supporters and opponents of the DRS. I suggest that the LBW as a method of dismissing a batsman should be struck off from the laws of cricket. Instead, a run penalty should be imposed on the batsman every time the ball comes in contact with an  'illegal' part of his/her body. The DRS could be used to adjudicate on this decision. The penalty could be  ten runs and increasing every time the batsman uses such illegitimate methods to stay at the crease.

I look forward to a debate.

Related article

Abolish the LBW - it has no place in the modern world

Saturday 8 December 2012

The rotten New Zealand cricket administration - among others!


Martin Crowe in Cricinfo

Cricket has stood the test of time as a great sport. Its worth is obvious when the sun comes out and a contest between two teams can be enjoyed hour after hour, day after day.
Many play because of the unique nature of individual expression, bowler against batsman, inside a team environment. Eleven-a-side offers plenty of variety in personality and character, which is required, given the different roles and skills that are called upon. Cricket is a fine all-round sport: healthy for the body but without direct contact, and healthy for the mind as it makes you think and concentrate for long periods.
It's no different in New Zealand, despite our national game being rugby. Of course our climate is more suited to the winter code, but you still can't beat a summer afternoon Down Under playing cricket, either professionally or as a pastime. For a century we have embraced our favourite summer sport. It has added worth to our landscape, our culture, and to our international reputation as a nation.
Not anymore. When an organisation like New Zealand Cricket starts stripping the self-worth (and I don't mean monetary worth) from talented athletes, when a young player enters the system and leaves it disillusioned and dispirited, the the sport becomes worthless.
In a previous article I wrote about why I thought we struggled to score more Test hundreds compared to any other nation. I named a large group of batsmen through the last ten years who have come and gone through our appalling system, and no doubt most have departed feeling a certain disenchantment with their treatment.
It's sad to see young people chase their dreams only to miss out. Of course that is part of life and its challenges. But in New Zealand the cricket environment is failing more players than ever. In short, that is why we are now ninth below Bangladesh in ODIs, and eighth in Tests and T20.
Cricket is tough on the individual; you can spend half your life playing only to retire in your mid-30s with no other skills to offer in the workforce because cricket has consumed all your time and energy.
Over the last week NZC destroyed the soul of Ross Taylor, easily our best player. They have apparently apologised for the way his sacking from the captaincy was handled. Nevertheless they have amputated his spirit and there is no prosthetic for that. And yet NZC goes unaccountable. They continue to strip the worth from players and, therefore, as an organisation, they have definitely become worthless.
The leadership has been poor in the past, but the fish head couldn't smell any worse now. From the chairman to the CEO to the coach to the manager, they have all played their collective part in what is arguably the most botched administration in New Zealand sporting history.
 
 
This week the game in New Zealand has been severely damaged. Those who have contributed to this debacle may as well stay on because they have done such a murderous job that the next lot, no matter how good they are, will always be playing catch up
 
Some are saying that the removal of Taylor as captain was an orchestrated coup, stemming back to when John Wright resigned in April. No one will know, and who really cares whether it is by design or by incompetence? The fact is, the execution is rotten enough for accountability to be demanded and for all four positions be given to more transparent, more competent and more worthy men.
Taylor is such a resilient character that he will bounce back. But he will probably never trust NZC again. Coaches will come and go and it won't affect his batting, which has been amazing while he has been captain.
When he was told by the management just days before the first Test in Sri Lanka that he was useless, he didn't say anything, he didn't react; instead he went out and won the second Test off his own bat. Knowing the circumstances, I have no hesitation in saying that his 142 and 74 on a turning pitch, plus his winning captaincy, were the equal of Richard Hadlee's 15 wickets in Brisbane in 1985. These two performances stand out to me as the greatest in our Test history.
During New Zealand's next Test against South Arica in the New Year, Taylor will be on a beach somewhere, playing with his young family. It is extraordinary to think this could happen but NZC had no hesitation to make it so. Not one kid that I know in New Zealand understands it. They are confused.
And they are the future. They will be subconsciously wondering if playing cricket beyond school is worthwhile.
Everyone knows that the more New Zealand play badly, the less their players will be recruited to the likes of the IPL. The present players are thriving in it, but over time the money and opportunity will dry up for nations who drift into the backwaters. The next generation may not see the lure in playing unless the present players create an attraction that is good enough. This present bunch have acquired a reputation for looking after their own and forgetting the future.
This week the game in New Zealand has been severely damaged. Permanently, I believe. Those who have contributed to this debacle may as well stay on because they have done such a murderous job that the next lot, no matter how good they are, will always be playing catch up. But those directly accountable should go, simply as rightful punishment.
No matter what happens, who comes or goes, NZC has shown that it is not safe for a young person to risk the journey knowing that the likelihood of his or her worth being stolen away is odds on. If there is one thing in life that is always valuable and important, it's your feeling of self-worth. With cricket in New Zealand I wouldn't risk it; it's just not worth it.

Friday 24 August 2012

Performance Analysis of international cricket teams since 2006


S Rajesh in Cricinfo
After hanging on to the No. 1 spot for a year, England have relinquished it to South Africa, and Andrew Strauss, their captain, was quick to acknowledge that Graeme Smith's team thoroughly deserved the honour, given their recent form. England had an extremely dominant spell when they won eight out of nine series, but since then, they've lost two out of four, and both by convincing margins - 3-0 to Pakistan and 2-0 to South Africa.
South Africa's strong run, on the other hand, has been going on for much longer: since December 2006, in 20 series, they've won 13, drawn six, and lost only one - to Australia at home in 2009, immediately after beating them in Australia earlier in the season. During this period they've won two series in England, and one each in Pakistan, Australia, New Zealand and West Indies. They haven't won a series in India in two attempts, but each time they've won a Test and drawn the series. The only country in which South Africa didn't win or draw their last series is Sri Lanka - they lost 2-0 in July-August 2006.
The big difference between the recent records for England and South Africa has been the teams' overseas performance. During England's powerful run between 2009 and 2011, most of their emphatic wins were achieved in England: Australia was the only major opposition they beat in an away series - their other overseas win was in Bangladesh, while they drew in South Africa. On the other hand, they beat West Indies, Australia, Pakistan, Sri Lanka and India at home.
India's ascent to the top spot in December 2009 was also largely based on home wins, though they also had two creditable series wins in England (in 2007) and New Zealand (2009), But out of seven series wins between 2007 and 2009, four were achieved at home - against Pakistan, Australia, England and Sri Lanka - and one in Bangladesh. On the other hand, they lost series in Australia, South Africa and Sri Lanka during this period.
South Africa's move up the table, though, has been based on wins both home and away. In 27 away Tests since December 2009, they have a 14-4 win-loss record, with no series losses. That record dips slightly in home Tests, to 16-9 in 28 matches, with one series defeat in ten.
The table below compares the records for all teams since December 2006, excluding Tests against Zimbabwe and Bangladesh. Though Australia have a marginally better overall win-loss record during this period, South Africa have been the overwhelming champions in away Tests: they have a win-loss ratio of 3, while none of the other teams has managed even half that. England, on the other hand, have a ratio of 0.5, exactly the same as India.
Teams in Test cricket since December 2006 (excl. Tests v B'desh and Zim)
TeamTestsW/LRatioAway TestsW/LRatio
South Africa5126/ 132.002512/ 43.00
Australia6134/ 162.122912/ 91.33
Pakistan4010/ 160.623610/ 150.66
England6927/ 211.28317/ 140.50
India5921/ 181.16338/ 160.50
Sri Lanka4513/ 140.92203/ 100.30
New Zealand374/ 210.19171/ 120.08
West Indies466/ 220.27231/ 130.07
A closer look at the overseas stats indicates the major differentiator between South Africa and the other teams: it's the ability of their batsmen to retain the ability to make huge scores even when playing in unfamiliar conditions. Several teams have better batting averages in home Tests than South Africa: India average 47.82, Australia 40.96, England 40.29, and Sri Lanka 39.94, while South Africa are fifth, on 35.62. (All stats exclude Tests against Zimbabwe and Bangladesh).
However, in away games, South Africa's batting is a long way better than other teams: they average 44.93, and the next best are Australia on 35.51. Even allowing for the fact that away Tests for other teams include matches in South Africa, where conditions are toughest for batting these days, the difference is huge. India's batting average overseas falls to 31, while England are slightly better at 33.48.
One of the key stats here is the number of hundreds scored by South African batsmen: in 25 overseas Tests, they've scored 41 hundreds and 55 fifties. That works out to an average of 1.64 hundreds per Test, and a fifties-to-hundreds ratio of 1.34. Both are significantly better than those of other teams. India, for example, average 0.70 hundreds per Test, and have a fifties-to-hundreds ratio of 4.26. That South African ability to convert starts into big scores was evident in the series in England too, when they turned five out of ten 50-plus scores into hundreds, including three scores of more than 180.
Meanwhile South Africa have always been blessed with high-quality bowlers, which means the efforts of their batsmen haven't gone waste. However, three other teams - Australia, Pakistan and England - have bowling averages that are similar to those of South Africa. The key difference has been the ability of the batsmen to rack up huge scores, no matter what the conditions.
Overseas stats for all teams since Dec 2006 (excl. Tests in B'desh and Zim)
TeamTestsBat ave100s/ 50sWkts takenBowl ave
South Africa2544.9341/ 5539534.16
Australia2935.5134/ 7948433.37
Pakistan3629.0522/ 9059332.66
England3133.4834/ 7247135.85
India3331.0023/ 9848740.12
Sri Lanka2033.4527/ 3721650.09
New Zealand1724.877/ 3021439.93
West Indies2329.6319/ 5326945.17
Among batsmen who have scored 1500-plus overseas runs since December 2006 (excluding matches in Bangladesh and Zimbabwe), four of the top eight averages belong to South Africans. Hashim Amla and AB de Villiers have 65-plus averages, while Jacques Kallis and Graeme Smith average more than 54.
Some of the top batsmen from other teams have struggled overseas during this period. Rahul Dravid averaged only 35.10 in 33 Tests, Ricky Ponting 36.82, Virender Sehwag 36.97, and Michael Hussey 37.34. VVS Laxman averaged 70.45 in home Tests during this period, but in overseas games his average dropped to 41.35. (Click here for the full list of batsmen in overseas games, with a 1500-run cut-off.)
Best overseas batsmen since Dec 2006 (Qual: 1500 runs, excl Tests in B'desh and Zim)
BatsmanTestsRunsAverage100s/ 50s
Hashim Amla25248665.428/ 11
AB de Villiers25214765.065/ 9
Shivnarine Chanderpaul19160761.805/ 10
Kumar Sangakkara19197258.009/ 6
Jacques Kallis24208257.8310/ 6
Chris Gayle16151756.184/ 4
Misbah-ul-Haq24186754.913/ 15
Graeme Smith25228654.428/ 10
A further break-up for these four South African batsmen shows how adept they have been against both pace and spin in overseas Tests. Amla and de Villiers average more than 70 against pace, and more than 60 against spin. Kallis' average against pace, and Smith's against spin, drop below 50, but they're still pretty impressive numbers.
On the other hand, some of the other top batsmen from other sides have struggled against either pace or spin, or in some cases both, in overseas matches. For the Indians, pace has been the problem: Dravid averaged 34.67 against fast bowling, Laxman 35.50, Sehwag 37.93 and Tendulkar 43.40; against spin Tendulkar and Laxman average more than 60, and Dravid 46.42. For England, Pietersen and Cook average marginally more than 40 against pace in overseas matches, but Ian Bell's average drops to 37.68; against spin, Cook averages 73.46, and Pietersen 48.15. Ponting averages 35 against pace and Hussey 30; against spin their averages are 61 and 52. Kumar Sangakkara, Sri Lanka's best batsman, averages 54 against pace and 64 against spin, but Jayawardene's average against pace is only 29.29.
South Africa thus have a core group of batsmen who've proved themselves to be top-class against both pace and spin in overseas Tests. There was a time when India's top four were similarly capable as well, but they didn't always have the bowling support to convert their batting class into victories. Dale Steyn and Co have ensured that South Africa don't face that problem, and the result is a well-deserved top spot in Test cricket. The challenge now will be to ensure they don't slip up like India and England did.
South Africa's top batsmen v pace and spin in overseas Tests (excl. B'desh and Zim)
BatsmanPace-runsDismissalsAverageSpin-runsDismissalsAverage
Hashim Amla14572072.8510291664.31
AB de Villiers11761578.409631564.20
Jacques Kallis9502047.5011071669.18
Graeme Smith14312459.628171845.38