Friday's Top 10 with NZ Mint: EU banks seriously underwater; death & taxes; American bank amnesia; Randy Newman

Here's my Top 10 links from around the Internet at 10:00 am today in association with NZ Mint.

Bernard Hickey is on vacation and won't be back until early May.

I welcome your additions in the comments below or via email to david.chaston@interest.co.nz. I am especially keen to get your suggestions for suitable cartoons. If you notice a really good one, please email me.

See all previous Top 10s here.

1. Iceland to rescue the UK
The volcanoes of Iceland could soon be pumping low-carbon electricity into the UK under government-backed plans for thousands of miles of high-voltage cables across the ocean floor. To reach Iceland, which sits over a mid-ocean split in the earth's crust, the cable would have to be 1,000 to 1,500km long and by far the longest in the world.

The UK has been energy independent for virtually its entire history. But with the North Sea's oil and gas failing and coal banned as too polluting, their Energy Minister is frank about the future: "We will be dependent on imported energy." The cables "are an absolutely critical part of energy security and for low carbon energy", he said..

New, efficient cable transmission technology that will clearly be required will be very useful for New Zealand.

2. US$2,000 gold
A record high gold price above US$2,000 an ounce next year could mark the peak of the precious metal's more-than-decade-long bull run as monetary policy in key economies starts to normalise, the chairman of metals consultancy GFMS said on Wednesday. More from Reuters. 

Gold [is] expected to trade in a range of $1,530-1,920 an ounce in 2012, with an average price of $1,731 an ounce. The upper end of that price view is just below last year's record $1,920.30 an ounce, reached in September.

"What we're seeing ... is a postponement of the next leg higher in prices," Klapwijk said before the launch of GFMS' Gold 2012 report. "The $2,000 an ounce level being surpassed is probably looking more like a story for the first half of 2013 than something we will see in the second half of this year."

Gold prices in NZ$ are here » and you can also track bullion, coin, and gold scrap prices here »

3. China can't rescue the world
Satyajit Das says the reality is that a significant part of China's growth since 2007 has been an illusion. Its headline growth of 8-10% since then has been driven by new lending averaging 30-40% of GDP.

But up to a quarter of these loans may prove to be non-performing, amounting to losses of 6-10% of GDP and if these losses are deducted, Chinese growth is much lower.

China's problems are likely to affect global growth. There will be significant effects on commodity prices and volumes, affecting resource producers and commodity-exporting nations such as Canada, Australia, Brazil, Russia and South Africa.

It will also affect demand for industrial goods, especially advanced machinery. China consumes more than $500bn of these products, mainly imported from Europe, US and Japan.

Chinese demand for US dollars, euros and yen will diminish. This will force borrowers, primarily governments, to find alternative buyers for their bonds. This may drive down the value of these currencies and increase the interest cost.

4. EU 'sugar rush' nears exhaustion
Credit experts say Spanish and Italian banks are trapped with large losses on sovereign bonds bought with ECB funds under the three-year lending program. Ambrose Evans-Pritchard explores a potentially explosive issue, one that will probably drag in more money-printing by Mario Draghi, much to the annoyance of the Germans.

Andrew Roberts, credit chief at RBS, said Spanish banks used ECB funds to purchase five-year Spanish bonds at yields near 3.5% in February and 4.5% in December. The same bonds were trading at 4.77% on Wednesday, implying a large loss on the capital value of the bonds.

It is much the same story for Italian banks pressured into buying Italian debt by their own government. Any further dent to confidence in Italy and Spain over coming weeks – either over fiscal slippage or the depth of economic contraction – could push losses to levels that trigger margin calls on collateral.

"The banks are deeply underwater. This is turning into a disaster for the eurozone periphery now that the liquidity tap has been turned off," said Mr Roberts. "But given the opposition in Germany, the ECB can't easily do another LTRO until there is a major crisis."

5. Another extinction?
Facebook has just spend US$1 billion on an acquisition of a picture filtering service, Path. Now some start-ups are asking: Who needs the Web? Smartphones are everywhere, allowing apps to be self-contained social worlds, existing almost entirely on mobile devices.

It is a major change from just a few years ago, underscoring how the momentum in the tech world is shifting to mobile from computers. The New York Times has some insightful analysis:

"For decades, the center of computing has been the desktop, and software was modeled after the experience of using a typewriter," said Georg Petschnigg, a former Microsoft employee who is one of the creators of Paper, a new sketchbook app for the iPad. "But technology is now more intimate and pervasive than that. We have it with us all the time, and we have to reimagine innovative new interfaces and experiences around that."

6. The self-imposed limits to Chinese growth
There are dangerous imbalances in China’s economy, starting with its emphasis on exports rather than household consumption.But now a new analysis goes further, showing how Chinese policies hamper the development of private companies and the service sector.

Because interest rates and the exchange rate are tightly managed and not market-oriented, its author says economic growth over the past decade has been badly distorted and inefficient. And that, he says, could set the stage for a lengthy period of sluggish growth.

The [Chinese] property boom is based on the widespread assumption that property prices will continue to move upward with only brief and shallow price corrections. If this expectation changes, investment demand in residential property could evaporate. Demand for output of steel, cement, copper, aluminum and many other products is driven largely by residential real estate, so if that sector slumps it could usher in a long period of much slower economic growth.

7. American fantasy
Remember the 2008 sub-prime fiasco? No? Well you are in good company. A growing number of American bankers don't remember it either. After all it was soooo long ago, and we are well past it now - aren't we? (Aren't we?) Not that we don't have 95% home loan offer in New Zealand re-appearing too ...

Annette Alejandro just emerged from bankruptcy and doesn’t have a job, and her car was repossessed last year. Still, after spending her days job hunting, she returns to her apartment in Brooklyn where, in disbelief, she sorts through the piles of credit card and auto loan offers that have come in the mail.

“Even I wouldn’t make a loan to me at this point,” Ms. Alejandro said.

In the depths of the financial crisis, borrowers with tarnished credit like Ms. Alejandro were almost entirely shut out by traditional lenders. It was hard enough for people with stellar credit to get loans.

But as financial institutions recover from the losses on loans made to troubled borrowers, some of the largest lenders to the less than creditworthy, including Capital One and GM Financial, are trying to woo them back, while HSBC and JPMorgan Chase are among those tiptoeing again into subprime lending.

How confident can we be that these types of loans aren't packaged up and re-marketed as 'investment grade'?

8. Death and taxes
April 15 is the last day American have to file their tax returns. The IRS code is mind-blowingly complex, and people stress about getting things right for the tax-man. Apparently, they stress about it a lot. Some can't handle it and the two 'certainties' come together in a macabre way on that day. Bloomberg reports:

9. 'She believed her bank'
The Occupy movement seems to be morphing into a support group for under-stress homeowners. Here's Bloomberg again:

Here's how Pamela Flores tells it: A couple years ago, she found that she couldn't keep making mortgage payments on her Atlanta house.

She says she then tried to get a loan modification, according to CBS Atlanta. Instead, Bank of America advised her to stop making payments altogether so that she could qualify for the Making Home Affordable Program, a federal initiative meant to provide mortgage relief.

Flores says BofA put her on a trial plan, then told her she'd missed a payment during the trial period and rejected her application. Flores contends she made that payment. Now BofA is foreclosing on Flores's home, saying it will go up for auction in less than a month.

10. The last laugh
Never say no to a panda. How dairy products are marketed in Egypt.

and here is a bonus, apropos of nothing. Or maybe its the anthem of the Occupy Movement.