Wednesday's Top 10: What happens when the printing slows down?; Australia a 'fracking' lucky country too; Enough shale gas for a decade?; 'Why America should turn Japanese'; Dilbert

Here's my Top 10 links from around the Internet at midday today.

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 read today is #7 on how an interest rate is a price.

1. Now the rubber hits the road - Now we are seeing just how genuine the rally in stock markets and emerging market currencies is.

The big news over the last couple of days has been the sell-offs in emerging stock markets and currencies as investors previously reliant on cheap and often freshly printed central bank money start to pull it back in anticipation of higher interest rates at home.

This is the crunch point.

Even the merest suggestion that central banks may take these markets off the drip and they're having a tizzy.

What's needed of course, is self-sustaining economic recoveries that don't rely on low interest rates.

It will be very interesting to see how our housing markets and economy cope at the first suggestion of a rising Official Cash Rate. We might get an early test of that tomorrow morning when the Reserve Bank releases its June quarter Monetary Policy Statement at 9 am.

Here's James Saft from Reuters with his thoughts on the emerging bear market in emerging markets:

Benchmark shares in emerging markets are slumping, with the MSCI Emerging Markets index down 10 percent from its January peak, halfway to the 20 percent fall that qualifies as a bear market.

While this is in contrast to strong gains in developed markets, which have been well supported by quantitative easing by major central banks, a quick look at data released by China over the weekend reveals the underlying reasons.

Overall exports by China showed their lowest rate of growth in nearly a year in May and, importantly, shipments to the U.S. and the European Union fell outright for the third month running. Imports into China also fell by 0.3 percent, against expectations of a 6 percent rise.

2. Shale gas for Africa? - Or maybe that's Australia. Here's the SMH with the good (?) news from a recent prediction about huge amounts of shale (ie the stuff you get from fracking) gas in Australia. 

3. A fondness for Lamborghinis... - Here's Tim Hunter at Stuff with an interesting yarn about Hanover. It involves some property developers with a penchant for resort property developments and fast cars.

Will anyone ever learn anything?

4. Now that's a budget cut - FT reports Greece shut down its state broadcaster overnight to make sure it could sack thousands of public workers.

John Key and co must be a tad jealous of the Greek government...

5. No worries then - The US Department of Energy reckons there's enough shale gas around to keep the world supplied for a decade...

We'll see.

Oil is not the same as gas. Extracted profitably is not the same as technically available.

I also wonder why the price of oil remains so stubbornly high when there's so much new supply coming on stream.

6. The net is tightening - FT reports US tax authorities are cracking down on the use of digital currencies such as bitcoin because they see them as tax avoidance vehicles. Fair enough. 

7. An interest rate is a price - Brennan McDonald has written a nice blog musing on the problem of artificially low interest rates.

One of the problems with central bankers is that they live in a bubble. In their interactions with the financial community, the media, the corporate executives they meet at conferences and the people who sit next to them in private jet terminals and airport lounges around the world – quantitative easing is doing wonders for their household net worth.

But the problem of living in a bubble is that for pretty much anyone who does not own a substantial amount of assets, the economy sucks. Household wealth has gone down for most people, with tarnished credit ratings they can’t borrow even though they might have a good cheap business idea. That means that quantitative easing can only succeed if the banks pass on the implicit subsidy they’re getting from everyone else in the world.

Inflation has not emerged like some said it would. That’s because although the monetary base has expanded dramatically, velocity of money has declined – even plummeted in some economies. After Cyprus, people are aware that a bank deposit is an unsecured deposit and it’s not yours. This means that moving from cash into anything but a bank account pushes asset prices even higher.

How does this all end? Well, if interest rates rise suddenly, enormous capital losses are imposed on bondholders. The mantra of the global financial crisis has been “Thou shalt protect the bondholders” – same for the Wall Street bailout that used AIG as a conduit. How leveraged have hedge funds been in taking advantage of QE? How bad will the margin calls be? How will the prime brokerage desks handle a potential repeat of 1994?

8. Maybe Abe-nomics is not working - Reuters reports on a slide in machinery orders in Japan. The Yen is up again too...

9. Really? - Joe Stiglitz says in this New York Times Op-Ed that America should be turning Japanese (ie doing an Abe-nomics)

WITH his three-pronged approach — structural, monetary and fiscal policies — Mr. Abe, who took office last December, has done what America should have done long ago. Though the structural policies have not been fully fleshed out, they are likely to include measures aimed at increasing labor-force participation, especially among women, and hopefully by facilitating employment for the large number of healthy elderly. Some have suggested encouraging immigration as well. These are areas in which the United States has done well in the past, and are crucial for Japan to address, for the sake of both growth and inequality.

10. Totally John Oliver on the PRISM scoop.

(Updated with video/cartoons/links)