Wednesday's Top 10 with NZ Mint: Why Australia and NZ should beware of Chinese cyber-hackers; A scratch and sniff currency; Japan's VaR shock; Jon Stewart on Apple's iTax plan; Dilbert

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

As always, we welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz.

See all previous Top 10s here.

My must watch is #10 part II from Jon Stewart on Apple's tax planning.

1. Beware of China's cyber-hackers - ABC's Four Corners in Australia broadcast an explosive piece this week on how Australian companies and government departments are being hacked heavily, often from China.

It seems the plans for a new ASIO (Australia's spy agency) HQ have been hacked.

Four Corners detailed systematic hacking of Australia's largest companies too.

This is all very topical given the shenanigans around our own GCSB, which John Key has said has uncovered dozens of hacking episodes in New Zealand (without finger pointing at China)

We should be very wary of hacking from China. 

We forget many of the state-owned companies there see information gathering and intellectual property theft as a legitimate and patriotic task.

Respect for IP and what we'd call fair play is not high. I've bolded the key sentence. Henry van der Heyden would sympathise.

Here's the ABC:

Speaking with security specialists and insiders, Four Cornersalso details a number of specific high level break-ins involving Government departments. In each case it explains how the security system might have been breached.

A deafening silence surrounds this issue. Companies won't speak about the break-ins because they fear it will alarm clients and shareholders. Governments refuse to speak up because inevitably they will be asked, who is doing this? The answer is uncomfortable.

A number of people, including former government advisors in cyber security, claim the digital trail leads to China. Although it's unclear if the hackers are working for the Chinese Government, those same experts believe that any company doing significant business in China must assume it will be the target of corporate espionage.

------------------------------------------------------------------------------------------------------------------------------------------

Keep it safe. Keep it in a New Zealand Mint safety deposit box. Details here »
------------------------------------------------------------------------------------------------------------------------------------------

2. More on China's cyber-spying - Here's the Washington Post with the latest on China's cyber-hackers discovering US weapons designs.

Designs for many of the nation’s most sensitive advanced weapons systems have been compromised by Chinese hackers, according to a report prepared for the Pentagon and to officials from government and the defense industry. Among more than two dozen major weapons systems whose designs were breached were programs critical to U.S. missile defenses and combat aircraft and ships, according to a previously undisclosed section of a confidential report prepared for Pentagon leaders by the Defense Science Board.

Experts warn that the electronic intrusions gave China access to advanced technology that could accelerate the development of its weapons systems and weaken the U.S. military advantage in a future conflict. The Defense Science Board, a senior advisory group made up of government and civilian experts, did not accuse the Chinese of stealing the designs. But senior military and industry officials with knowledge of the breaches said the vast majority were part of a widening Chinese campaign of espionage against U.S. defense contractors and government agencies.

------------------------------------------------------------------------------------------------------------------------------------------

New Zealand Mint. Experts in gold & silver bullion, commemorative coins and jewellery. Details here »
------------------------------------------------------------------------------------------------------------------------------------------

3. The Narcissist rally - Barry Ritholz points to three reasons for the astonishing rally on stock markets globally, including an awful lot of debt raised to buy back shares. Sustainable? Maybe not.

Stocks have soared because the Fed’s quantitative easing has – intentionally – pumped them up.

They’ve also skyrocketed because the Fed and other central banks are directly buying stocks.

NBC News reports on a third major reason that stocks took off … corporate buybacks: It’s the narcissist rally.

------------------------------------------------------------------------------------------------------------------------------------------

Available now. Our brand new 1 oz Taku gold bullion coin. Details here »
------------------------------------------------------------------------------------------------------------------------------------------

4. Scratch and sniff money? - Mcleans.ca reports Canada's new plastic bank notes smell a lot like maple syrup. Our Reserve Bank is rethinking our own bank notes. Maybe ours need to smell like honey. Honey is the hot commodity right now and in big demand in China. 

Dozens of people who contacted the bank in the months after the polymer notes first appeared asked about a secret scratch-and-sniff patch that apparently smells like maple syrup.

“I would like to know … once and for all if these bills are in fact scented, as I do detect a hint of maple when smelling the bill,” says a typical email from a perplexed citizen.

Said another: “They all have a scent which I’d say smells like maple? Please advise if this is normal?”

5. Hope in new technology - As I keep pointing out to pdk, I haven't lost all hope for growth yet as we uncover new technologies.

The latest is being able to turn concrete into steel. Here's the Atlantic with the story.

A collective of researchers from the U.S., Finland, Germany, and Japan, working with the U.S. Department of Energy, has developed a way to make metal out of the straw of the contemporary world: cement. The process they discovered, published yesterday in Proceedings of the National Academy of Sciences, transforms liquid cement into a kind of glass-metal fusion that is exceptionally good at conducting heat and electricity. The resulting hybrid, the scientists say, can be used as a semiconductor in electronics: it offers good conductivity, low energy loss in magnetic fields, better resistance to corrosion than traditional metal, less brittleness than traditional glass, and fluidity for ease of processing and molding.

Which means that your gadgets -- their liquid-crystal displays, their protective coatings, their computer chips -- may soon be made, in part, of cement.

6. Here comes the slowdown - The drums have been beating in China for weeks at the new leaders are deliberately slowing down growth there.

Here's Bloomberg with the latest:

China’s President Xi Jinping signaled a tolerance for slower expansion to avoid environmental degradation as policy makers outlined plans for the private sector to take a bigger role in boosting growth.

The country won’t sacrifice the environment to ensure short-term growth, Xi said during a study session of the Communist Party’s top leadership on May 24. His comments follow a statement issued on the same day that the State Council, which is chaired by Premier Li Keqiang, approved measures including tax reform to revamp the economy.

Xi and Li, who took over respectively as president and premier in March, are laying the groundwork to cut the government’s role in the economy, open state-dominated industries to private investment and revamp the household registration system that’s hampering urbanization. Some changes are already being trialed while others will be decided at a meeting of the Communist Party’s leadership later this year.

7. No further Chinese stimulus - Global Times reports China has decided not to enact new stimulus to boost flagging growth, which is in line with the engineered slowdown referred to above. Here's more on this from Bloomberg on how China is now targeting 7% growth rather than 10%.

Senior officials and experts believe it is unlikely the central government will launch a new round of economic stimulus plans despite a slowdown in the country's economy, the Economic Observer reported Saturday.

"Enterprises need to close down backward production and upgrade their industrial structure, and should not expect further economic stimulus measures by the government," an official from the National Development and Reform Commission, who wished to remain anonymous, told the Beijing-based newspaper.

Another official from the Ministry of Industry and Information Technology was quoted by the newspaper as saying that the Chinese government did not need to begin new stimulus measures at present.  "The stimulus measures will be taken only if the growth of the real economy is slower than (the government's) expectations," the source said, adding that the measures could have side effects, such as disturbing the market order.

8. This isn't good - The New York Times reports talks to end an anti-dumping dispute between Europe and China over China's solar panel subsidies broke down in acrimony overnight after China managed to carve Germany out of the EU consensus. Divide and rule. Works every time.

The European Union accuses Chinese firms of selling solar panels below cost in Europe, a practice known as dumping, and has already proposed antidumping tariffs of nearly 50 percent on Chinese solar panel shipments. That is one of the largest categories of Chinese exports to Europe and worth about $27 billion a year.

But Germany’s economy minister said that his country had informed the European Commission, which is the executive branch of the European Union, that it opposed proceeding with the solar panel tariffs. If a majority of the European Union’s 27-member states oppose tariffs during the current consultation period, then the commission could be forced to abandon the tariffs. But that could risk undermining the commission’s long-term ability to negotiate trade deals on behalf of the bloc.

9. VaR shock - Japanese bond markets are all over the place after the Bank of Japan promised to double Japan's money supply and buy bonds as part of a plan to get inflation up to 2% within a couple of years.

But there's a huge contradiction inherent in that.  Big BoJ buying of bonds should increase the price and lower yields, but expectations of inflation headed for 2% should increase the yields from where they were below 1%. The end result is a lot of confusion and volatility, which is unnerving Japanese banks, who hold an awful lot of them and often have to offload very volatile assets.

This volatility itself can trigger selling by Japanese banks who have limits on this so-called Value at Risk (VaR) volatility. See more on that here at FTAlpaville.

There was a similarly large VaR shock in 2003. This is one of the unintended consequences of the Japanese QE programme.

 In terms of their sensitivity to JGB interest shocks, Japanese banks appear to be more vulnerable than they were in 2003. For example in 2003, the expected theoretical loss from a 100bp interest rate shock was around ¥2tr for Major banks, ¥3tr for Regional banks and ¥1tr for Shinkin banks, significantly lower than they are currently.

10. Totally Jon Stewart on the US Inland Revenue Service's targeting of conservative groups. 

And Part II Totally Jon Stewart on Apple's tax strategies