Top 10 at 10: Questions for South Canterbury; China-US trade tensions; Daily Show; Dilbert

Here are my Top 10 links from around the Internet at 10 am (really!). I welcome your additions and suggestions in the comments below. There's nothing wrong with my hair today... 1. Tough questions - Yesterday's announcement by South Canterbury Finance that it has borrowed NZ$75 million from PGC's Torchlight has attracted some tough questions, not least from accountant blogger David Hillary over at Lost Soul. For example, why didn't South Canterbury announce that this loan facility has first dibs on South Canterbury assets ahead of any claim debenture holders (or the government) might have? What is the interest rate being charged? What are the covenants? There remain serious questions too about the success of any capital raising by South Canterbury Finance to raise up to NZ$500 million. Here's a few of David's points.

The trouble lurking on SCF balance sheet includes: Dairy Farms -- these assets produce poor returns and have been falling in value in the last year by around 30%. With Crafer Farms, one of the largest dairy farms in NZ in receivership with something like $200m of debt, and with Dairy Farms from South Canterbury Finance and associated entities hitting the market, the market value of Dairy Farms could fall dramatically, leaving a huge hole in SCF. Loans secured on Dairy Farms -- SCF appears to have been funding major amount of dairy conversions, and as above the security for these loans has been losing value fast, and could lose a lot more. Property development loans -- always risky and SCF has a lot of them, with only modest provisions. Loans to directors etc. secured on the shares of the parent company, Southbury Group. If the company raises a lot of new capital, the value of the existing shares could be greatly diluted, making these loans real bad, real fast. Helicopters -- these could be worth a lot less than book value of the company needed to sell them (commercial aircraft have recently plummeted in value and are being cannibalised for scrap). Perhaps the more pertinent issue is not the details of the balance sheet but the quality of the management and the poor decision making that has been exposed: What were they thinking in aggressively expanding lending activity in the last 12 months? Instead of focusing on rationalising the business, prioritising high value client relationships and improving asset quality, they've been backing lending proposals others have been turning down for probably good reason. They appear to have thought that the credit crisis and property market crash was just a small hiccup, and that they would be proven right when everything bounced back to 2006. And now they appear to think they can beat the market again by tapping investors for more capital to fund business as usual. Sharemarket investors appear to have other ideas.

2. Oh the irony - China is investigating whether the United States is unfairly subsidising carmakers in another twist in growing trade tensions, the FT.com reports.

Few vehicles are actually exported from the US to China, but the move would have symbolic power by turning the tables on Washington. US labour groups have long accused Beijing of unfairly subsidising its exporters. However, through a "countervailing duties" investigation, China would assess whether the US was open to the same charge. The investigation could lead to import duties. General Motors and Chrysler have received about $60bn in government bail-out funds, though Ford has received nothing.

3. Really? - The US economy is out of recession, allegedly. Figures out overnight showed the world's biggest economy grew at an annual rate of 3.5% between July and September, BBC reports. But of course there's a catch.

The growth was helped by a substantial government spending plan, including a scrappage scheme to boost car sales. The figures from the Commerce Department showed that a number of factors helped to lift the economy during the third quarter. Spending on durable manufactured products soared at an annualised rate of 22.3%, the highest quarterly amount since 2001, led primarily by the impact of the cash for clunkers scheme lifting car sales. The housing market also improved, with spending on housing products up 23.4%, its largest quarterly jump in 23 years. Analysts said this big leap was sparked by the government's $8,000 tax credit for first-time house buyers.

So what happens when the government and the Fed inevitably have to withdraw the stimulus. Is there anything real underneath the US economy? It needs falling unemployment and years of debt reduction to really get going again. 4. Another view -  Mish over at Global Economic Analysis has a more pungent view on the US economy.

Today the market is cheering over what is actually an ugly report. A misguided Cash-for-Clunkers added a one-time contribution of 1.66 percentage points to GDP. Auto sales have since collapsed so all the program did is move some demand forward. Government spending increased at 7.9 percent in the third quarter which is certainly nothing to cheer about. Personal income decreased $15.5 billion (0.5 percent), while real disposable personal income decreased 3.4 percent, in contrast to an increase of 3.8 percent last quarter. Those are horrible numbers. The savings rate is down, which no doubt has misguided economists cheering, but people spending more than they make is one of the things that got us into trouble. The only bright spot I can find is exports. However, even there we must not get too excited as imports rose much more.

5. Is a home an investment - Peter Schiff reckons a home is not really an investment unless the rent clearly exceeds the outgoings, including maintenance. HT Mish , who says the following:

Value of the land itself may not go to zero (except in instances of excess taxation), but over time, the value of the structure always goes to zero unless it is maintained.

6. Dairy glut? - This piece in the LA Times looks at the glut in US dairying and what they might do to deal with it. The lawmakers are interested.... HT Andrew Wilson by email.

Prices have fallen amid plunging consumer demand. At a Senate Agriculture Committee hearing, talk of a solution centers on shipping milk and other dairy products to developing countries. Consumer demand, particularly for cheese, has slipped amid the worldwide economic downturn. But production continued to grow. In September, the price dairy farmers received for 100 pounds of milk was $11.90, according to the U.S. Department of Agriculture, down from a high of $19.50 in June 2008. The surplus is not easy to eliminate, because dairy cows must be milked -- or slaughtered. With the average cost of producing milk around $18 per 100 pounds, depending on the state, farmers lose money every day. If the Chinese drink milk, "we'll find a way to get it there," said Eric Ooms, a New York dairy farmer with 400 cows. The Obama administration recently signed into law $350 million in emergency aid for the industry. The USDA had already allocated nearly $1 billion for dairy product purchases and subsidies for the 2009 fiscal year. Farmers say the milk pricing system needs to be overhauled, something the senators agreed would be looked into when the next farm bill, scheduled for 2012, comes up.

7. The big break up begins - Finally the Brits are looking to break up their 'Too Big to Fail' behemoths, The Independent reports. HT Andrew Wilson via email.

Lloyds, Royal Bank of Scotland and Northern Rock will be broken up and parts of their businesses sold off to create three new banks, it emerged last night. Government sources said ministers were "determined" to see more competition in the market, following the £1.2 trillion bailout of the sector which resulted in the loss of three independent banks and several building societies.

8. Global imbalances - Nouriel Roubini talks here at the IHT about the global imbalances. 9. Carry Trade - Roubini again on the US$ Carry Trade, as reported by Bloomberg. 10. Friday Funny - Here's John Stewart talking about CEOs and Angry Mob Platinum cards.

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