Who’s counting the real cost?

A change of mind has occurred with Christchurch’s latest and most devastating aftershock from last September’s earthquake. It hit the country like the second blast at the Pike River coal mine, extinguishing earlier, more positive hopes.

While management of the earthquake recovery before February 22 had been less than impressive, it has now been cranked to the top of the government agenda and will dominate all else for months to come.

The U-turn is about the economic impact. From being benignly viewed as a positive for growth, it is now decidedly a big negative. Apart from the human tragedy, this about-turn is also due to the trickle of payments and the frustration victims have endured over the past six months.

For example, by the middle of last month the EQC had paid out $615 million, less than half its total exposure before reinsurance cuts in, despite the costs of the original quake, not to mention three major aftershocks before February 22, being put at several billions of dollars.

The level of payments appear well short of what reinsurance industry sources and others have predicted. These have now soared to as high as $16 billion, according to JP Morgan Chase.

Such a loss would make Christchurch the seventh-most costly natural disaster for insurers since 1970, according to the Insurance Information Institute, a New York-based trade group. The most expensive catastrophe was 2005’s Hurricane Katrina, which cost insurers $US71.2 billion.

Last year’s Chile quake, which cost insurers $US8.5 billion and claimed 521 lives, was last year's biggest disaster but wasn’t included in the ranking for statistical reasons.

Commenting on the New Zealand economy this week, Moody’s Analytics said “the boost to growth that many expected following September’s earthquake has been underwhelming.” This could mean companies and individuals are taking their losses up front, then getting their insurance money but are not spending it on their businesses and assets.

Between the lines
Booklovers should not have been as surprised as some in the business world at the collapse of the Whitcoulls-Borders-Angus & Robertson empire.

Sure, it was highly leveraged and bookselling, even with many of the baubles that go with it, often draws people with a counter-intuitive attitude toward profit.

But when Borders first appeared on the local scene, its slick operation and wide choice showed up the staid Whitcoulls, though not so much as Dymocks. Well, Dymocks didn’t last (one or two remain) and the merger of Borders with Whitcoulls, aimed at reducing overheads and pushing publishers around like the supermarkets do their suppliers, proved a bridge too far.

A number of reasons can be submitted but with a turnover of $A600 million, nearly a third of it in New Zealand, the business shows no lack of customers.

But I suspect books have become a specialty retailing item, with customers demanding the earth in choice but not prepared to pay for it in a shop. Online selling, which offers both, solves that dilemma but is not a solution for many gift buyers.

That is why the vouchers were such a sensitive issue. Buyers may not have realised it, but they are legally a financial asset, without the standing of legal tender, and turn the buyer (or giftee) into an unsecured creditor.

The demand for users to pay a corresponding amount in cash to redeem them was a ploy by accountants to prevent a run on stock with no corresponding cashflow. Accountants are more interested in the latter than in customer service.

It is not known if the bean-counters – for it is they who will save the company and not the customers – will find willing buyers, though I suggest the Normans (Farmers, etc) could do a turnaround. The Warehouse sells a lot of cheap books and DVDs without displaying them properly but is completely clueless up against the likes of Marbecks. That leaves some successful Paper Plus franchisees, though it is more likely Whitcoulls itself could follow that model.

As for Borders, which brought the US pile ‘em high model to the local scene, it will be a pity to see it go – though it may prove mass retailing of such a personalised pursuit as reading is unsustainable.

Stealthy work
Some light has been shed in a little-reported non-wiki leak on how the Chinese were able to unveil a version of the radar-proof Stealth bomber earlier this year.

It comes in the memoirs, published in Hong Kong. of former Chinese president Jiang Zemin – who met US President Clinton in Auckland in 1999 at Apec and laid the way for the FTA with New Zealand. In that same year, Zemin recalls China had agreed to allow Serbian intelligence inside its Belgrade embassy, which was bombed US Nato bombers.

According to a report by Michael Sheridan in the New York Post:

Jiang regretted allowing the Serbs sanctuary inside China's diplomatic mission and believed it was a serious political mistake. The memoir is said to tell how a furious Chinese government was forced to mute its protests after the Americans privately presented evidence of Serbian electronic communications from within the embassy.

But the true import of this incident has only been revealed when both Russia last year and the Chinese in January revealed they had both developed versions of the F-117 Nighthawk bomber.

The Serbs had shot one down during the conflict over Kosovo and had sold some of the remains to both parties, the result being Russia’s Sukhoi T-50, which had its maiden flight last year, and the Chinese J-20, shown off to coincide with a visit by US Secretary of State Richard Gates.

A report in Wired says the stealth jets are now largely irrelevant, except as show pieces.

… in a move that surprised many observers, in 2008 the Air Force formally retired the entire F-117 fleet, then roughly 40 strong… Officially, the F-117 was obsolete… It’s almost certainly true that the more recent B-2 bomber, F-22 and F-35 fighters and a whole host of known and rumored stealthy drones are made of newer, better materials than the F-117 and are therefore less visible to radar.

Valuing your marriage
First there was Reaganomics (after US President Ronald) and then Rogernomics, short-hand for supply-wide economics that favoured lower government spending and taxes, deregulation and using monetary policy to control inflation.

The portmaneau word caught on with Wikipedia also listing the retro Mellonomics (after the low-tax policies of US banker and Treasury secretary in the 1930s) and Thaksinomics (after the populist leader of Thailand), followed by Clintonomics and Obamanomics, which are really not “nomics” at all.

More recently has come the publishing phenomenon of Freakonomics and its imitators, such as Consumptionomics (see item “What happens if everyone is rich?”).

Now, just in time for Valentine’s Day a couple of weeks ago, comes Spousenomics, a guidebook for married couples subtitled “Using economics to master love, marriage and dirty dishes.”

The book has, naturally, spawned a small industry comprising a website and blog with endorsements from major newspapers, Bloomberg and various contributors, including (presumably) husbands.

Co-authors Paula Szuchman and Jenny Anderson are media mavens, working at the Wall Street Journal and the New York Times respectively.

Paula found time to provide five “regressive, not very romantic, yet extremely effectively lessons from economics for a happy marriage with long-term prospects”  for the Journal on February 14.

It didn’t quite match the furore over Amy Chua’s Chinese mothering policies but it must have raised a few knowing smiles in Manhattan, where the most followed TV is Mad Men (soon returning to Prime in New Zealand).

Typically for Paula, who edits the pithy Page One pars for the Journal, her five (actually eight) words of advice to each couple are: Talk less, lose weight, do the dishes, put out and scheme.

A final question: Why do financial advisers never mention marriage as the best way for a single person to build their wealth?