Here's my Top 10 links from around the Internet at 6pm in association with NZ Mint.
I welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz.
I'll pop the extras into the comment stream. See all previous Top 10s here.
Juan Carsalesman at number 10 made me laugh very hard.
1. Stress in European and US money markets - Ambrose Evans Pritchard writes at The Telegraph that central banks and official funds have parked record sums of US dollars at the US Federal Reserve because they don't trust their own banks.
The level of this 'distrust' is getting back to Lehman Bros collapse type levels from late 2008.
We need to keep a close eye on this.
All of this could continue to get worse over the next three months as we go through the Rugby World Cup and election campaign.
It's beginning to feel very similar to what we saw during the last election campaign in September and October 2008.
Here's my coffee bet for anyone who wants to take it. Whoever wins government, and that's likely to be National given the polls, will announce a black budget in either 2012 or 2013 as growth slows and the deficit stubbornly refuses to get back towards surplus by the forecast 2014/15.
Here's Ambrose and a cracking chart:
Data from the St Louis Fed shows that reserve funds from "official foreign accounts" have doubled since the start of the year, with a dramatic surge since the end of July when the eurozone debt crisis spread to Italy and Spain.
"This shows a pervasive loss of confidence in the European banking system," said Simon Ward from Henderson Global Investors. "Central banks are worried about the security of their deposits so they are placing the money with the Fed."
Lars Tranberg from Danske Bank said European banks are reduced to borrowing dollar funds for "a week at a time" rather than the usual six to 12 months. "This closely resembles what happened in late 2008, though the difference this time is that the major central banks have dollar swap lines in place. If the dollar funding markets completely freeze up, the European Central Bank can act as a backstop."
2. Bettting on Las Vegas land - Leith van Onselen at Macrobusiness does a wonderful job of looking at Las Vegas house prices and how land restrictions played a major role in the boom and then the 59% price bust that followed.
He concludes:
It’s hard to deny that if land had been freely available for development, developers would not have paid such high prices for the land sold by the federal government and Las Vegas home prices would never have risen to such dizzying heights or crashed as violently.
Las Vegas is yet another case study whereby excessive government interference in the supply of land (and/or the provision of housing) has mixed with easy credit to create a speculative bubble followed by a disorderly bust.
3. Going after the big guns - America's regulators may finally be getting serious about prosecuting the big banks.
The New York Times reports that the Federal Housing Agency is about to sue a dozen big banks, including Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank, for misrepresenting the toxicity of the loans they bundled up and sliced up into sub-prime dreck that blew up the world.
Finally.
The suits will argue the banks, which assembled the mortgages and marketed them as securities to investors, failed to perform the due diligence required under securities law and missed evidence that borrowers’ incomes were inflated or falsified. When many borrowers were unable to pay their mortgages, the securities backed by the mortgages quickly lost value.
Fannie and Freddie lost more than $30 billion, in part as a result of the deals, losses that were borne mostly by taxpayers.
And here's Reuters on a Federal Reserve order to Goldman Sachs over wrongful mortgage foreclosures.
4. Extend and Pretend - Reuters analyses the maturity of US government debt and finds it needs to be extended...otherwise it's not sustainable...
Insatiable demand for safe haven U.S. government bonds is helping mask a potentially huge financial problem -- the need to extend the maturity of debt issued by the United States.
The United States has the least balanced maturity schedule of any major nation. Over 70 percent of its bonds mature within 5 years, compared with an average 49 percent for the 34 member countries in the OECD. This leaves the country extremely vulnerable to any shift in investor sentiment at a time when its debt load has almost doubled in four years.
Marketable U.S. debt has risen to over $9 trillion, from around $5 trillion in late 2007, before the government increased spending to bail out struggling financial companies.
"There has never been a single example in the history of finance where financing long-term liabilities, which we are, with short-term debt, ends well," said Mitch Stapley, chief fixed income officer at Fifth Third Asset Management in Grand Rapids, Michigan.
5. Home from US$99 - The Daily Mail reports a company in America (Tumbleweed Tiny House Company) has started making portable houses (well more like sheds with beds and buckets) to house the poor.
6. 'Stupid and Arrogant' - Former US UK Chancellor of the Exchequer Alistair Darling has written about the financial crisis and the attitudes of various bankers, including Royal Bank of Scotland's 'Fred the Shred' Goodwin.
The former chancellor says in his memoirs that Britain’s bankers were “stupid and arrogant” and says Sir Fred behaved as if he was “off to play a game of golf” while officials struggled to prevent a meltdown.
Mr Darling describes the secret discussions which led to the Labour government effectively nationalising RBS and Sir Fred being heavily criticised for his management style and conduct.
7. Not enough subsidies - American solar tech company Solyndra fell over this week, despite huge US government loan guarantees. Basically, the state subsidy it was getting wasn't as big as the ones its Chinese competitors were getting from their government.
Sigh. I get beaten up for saying 'free' trade is a scam. But it is. No one plays fair except us. The Chinese are the biggest culprits, followed by the Americans and the Europeans.
Here's Todd Woody at Forbes on how a bunch of US green tech firms are now hitting the wall:
Founded by veterans of the Valley’s chip and hard-drive industries, these companies attracted billions of dollars in venture capital investment on the hope that their advanced “thin film” technology would make them the Intels and Apples of the global solar industry
But as the companies finally begin mass production — Solyndra just flipped the switch on a US$733 million factory here last month — they are finding that the economics of the industry have already been transformed, by the Chinese.
Chinese manufacturers, heavily subsidized by their own government and relying on vast economies of scale, have helped send the price of conventional solar panels plunging and grabbed market share far more quickly than anyone anticipated.
8. Today's must read - Michael Pettis is a closely watched academic economist who is based in China and tells it without varnish or an interest to protect.
Someone should put him in touch with John Key and cure our Prime Minister of his perenially sunny disposition about Chinese growth.
- BRICS and other developing countries have not decoupled in any meaningful sense, and once the current liquidity-driven investment boom subsides the developing world will be hit hard by the global crisis.
- Over the next two years Chinese household consumption will continue declining as a share of GDP. Chinese debt levels will continue to rise quickly over the rest of this year and next. Chinese growth will begin to slow sharply by 2013-14 and will hit an average of 3% well before the end of the decade. Any decline in GDP growth will disproportionately affect investment and so the demand for non-food commodities.
- If the PBoC resists interest rate cuts as inflation declines, China may even begin slowing in 2012. Much slower growth in China will not lead to social unrest if China meaningfully rebalances. Within three years Beijing will be seriously examining large-scale privatization as part of its adjustment policy.
- European politics will continue to deteriorate rapidly and the major political parties will either become increasingly radicalized or marginalized.
- Spain and several countries, perhaps even Italy (but probably not France) will be forced to leave the euro and restructure their debt with significant debt forgiveness. Germany will stubbornly (and foolishly) refuse to bear its share of the burden of the European adjustment, and the subsequent retaliation by the deficit countries will cause German growth to drop to zero or negative for many years.
- Trade protection sentiment in the US will rise inexorably and unemployment stays high for a few more years.
9. Totally irrelevant video from US comedian Rob Parovonian. I needed a laugh at the end of a long week.
10. Totally Clarke and Dawe - A used car salesman (Juan Previousowner) talks about the Australian economy.
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