Top 10 at 10: Japanese fiscal crisis looms; Eric Watson a dairy farmer?; Dilbert

Here are my Top 10 links from around the Internet at 10am. I welcome your additions and comments in the comments below or please send your suggestions for Monday's Top 10 at 10 to bernard.hickey@interest.co.nz We don't spend our stockholders money at interest.co.nz... 1. Friends worth having? - Eric Watson has moved on from Hanover and is now trying to list a Dairy farming company on the New York Stock Exchange, Denise McNabb writes in an excellent piece at Stuff. This is just the sort of credibility the global industry needs...

Multi-millionaire Eric Watson is about to create a US$400 million (NZ$531m) dairy company in the United States, using Kiwi farming practices, including grass-fed cows. The new company expects to halve the costs of an average US dairy farm and grab a chunk of the fresh milk market on the country's eastern seaboard. The new company wants to raise up to US$150m for the initial roll-out of the dairy business.

2. Bigger PIE? - Brian Fallow at the NZHerald reports on the Tax Working Group's preference for extending the PIE rules to other investments as an interim measure. The Group seems already to be factoring in a fudge. A pity. We need a reformed tax system that is cleaner, broader, simpler and fairer. More tinkering should not be an option.

They are critical of the "incoherence" of the current system arising from the misalignment of rates, with the top personal rate at 38 per cent, the trustee rate at 33 per cent, the company tax rate at 30 per cent and the capped rate for savings through portfolio investment entities (PIEs) also at 30 per cent. This can distort investment decisions and provides incentives to shelter income in corporate or trust structures (or a combination of both). The Government's declared medium-term objective is to align the rates at 30 per cent. Officials estimate this would cost around $1.4 billion a year in lost revenue. If alignment of the rates proved too difficult in the short term, the working group favoured extending the existing treatment of investment through PIEs, which are taxed at the lower of 30 per cent or the investor's marginal rate, to other forms of investment income including interest, rents and dividends.

3. Time to rethink - Selwyn Pellett from the Productive Economy Council details why Singapore has it right with monetary policy and why New Zealand has it wrong. It's worth debating. Here is a useful powerpoint from Selwyn outlining his argument. We love that it's packed full of charts from interest.co.nz.

4. 'Naked swindle' - Matt Taibbi of 'Vampire Squid' fame is back in Rolling Stone talking about the biggest insider trade of all time where a mystery trader bet on the collapse of Bear Sterns and won US$270 million. He points out that naked short selling drove Bear Sterns and Lehman out of business, enriching a few. Taibbi doesn't hold back. HT Bryan Bennett via email. A must read.

That this particular scam played such a prominent role in the demise of the two firms was supremely ironic. After all, the boom that had ballooned both companies to fantastic heights was basically a counterfeit economy, a mountain of paste that Wall Street had built to replace the legitimate business it no longer had. By the middle of the Bush years, the great investment banks like Bear and Lehman no longer made their money financing real businesses and creating jobs. Instead, Wall Street now serves, in the words of one former investment executive, as "Lucy to America's Charlie Brown," endlessly creating new products to lure the great herd of unwitting investors into whatever tawdry greed-bubble is being spun at the moment: Come kick the football again, only this time we'll call it the Internet, real estate, oil futures. Wall Street has turned the economy into a giant asset-stripping scheme, one whose purpose is to suck the last bits of meat from the carcass of the middle class. What really happened to Bear and Lehman is that an economic drought temporarily left the hyenas without any more middle-class victims "” and so they started eating each other, using the exact same schemes they had been using for years to fleece the rest of the country. And in the forensic footprint left by those kills, we can see for the first time exactly how the scam worked "” and how completely even the government regulators who are supposed to protect us have given up trying to stop it.

5. Don't forget Japan - We've all been fixated on the ruinous increase in US government debt and its destruction of its own dollar, but we shouldn't forget the country that is in its second lost decade after its property bubble burst: Japan. Here Hiroko Tabuchi from the New York Times lays out the fiscal ugliness in what is still (just) the world's second largest economy. This all means interest rates will rise globally and New Zealand will have to pay more in interest for its own NZ$40 billion of borrowing over the next 5 years. HT Troy Barsten.

Here, years of stimulus spending on expensive dams and roads have inflated the country's gross public debt to twice the size of its $5 trillion economy "” by far the highest debt-to-G.D.P. ratio in recent memory. Just paying the interest on its debt consumed a fifth of Japan's budget for 2008, compared with debt payments that compose about a tenth of the United States budget. Yet, the finance minister, Hirohisa Fujii, suggested Tuesday that the government would sell 50 trillion yen, about $550 billion, in new bonds "” or more. In the immediate term, Mr. Fujii's remarks prompted concerns of a supply glut in bond markets, sending prices on 10-year Japanese government bonds down 0.087 yen, to 99.56 yen, and yields to their highest point in six weeks. The Obama administration insists that it understands the risks posed by deficits and ever-increasing debt. Its critics are doubtful. But as Washington runs up a trillion-dollar deficit this year, with trillions in debt for years to come, it need look no farther than Tokyo to see how overspending can ravage an economy. "Public sector finances are spinning out of control "” fast," said Carl Weinberg, chief economist at High Frequency Economics in a recent note to clients. "We believe a fiscal crisis is imminent." One of the lessons of Japan's experience is that a government saddled with debt can quickly run out of room to maneuver. "Japan will keep on selling more bonds this year and next, but that won't work in three to five years," said Akito Fukunaga, a Tokyo-based fixed-income strategist at Credit Suisse. "If you ask me what Japan can resort to after that, my answer would be "˜not very much.' "

6. Just plain over valued -  Bert Dohmen points out in this newsletter republished at ZeroHedge that the market value of US stocks is now lower than in 1998 but the price to earnings multiple for these stocks is now higher than it was at the market peak in 2007. He points out that most of the volume on the US stock market is now done via high frequency trading programmes with positions open for seconds, let alone minutes. HT Gertraud via email.

The S&P 500 Index is now selling at 26 times operating earnings. That's more expensive than at the bull market top in 2007. Are things really better than at the five-year bull market top in 2007? What about the trillions of dollars of bad assets still on the books of financial institutions around the world? Most analysts agree that the market is over valued. Yet they have to participate because the market is going up. They hope to be the first ones out of the exit when the plug is pulled. Do you think you can do that?

7. More money printing - The Bank of England's Deputy Governor Paul Tucker hinted overnight that Britain may need to print more money. This was not popular with those holding the increasingly worthless pound, WSJ.com reported.

In an interview with the Scotsman newspaper, Paul Tucker said the quantitative easing program "” "“ bond purchases with freshly created central bank money "” would be extended if needed. He said that if it was deemed necessary to increase the amount of quantitative easing proposed under the current scheme, then "it would be possible and it would happen," according to the article. The BOE's Monetary Policy Committee is currently targeting a £175 billion bond-buying program, which is also the government's ceiling for quantitative easing.

8. He said what?! - A Goldman Sachs brahmin came out in London the other day and said it was a good thing that he was paid squillions and others were paid not much. It did not go down well. Here's the guardian's take. HT Ross Palmer and others via email.

In remarks that will fuel the row around excessive pay, Lord Griffiths, vice-chairman of Goldman Sachs International and a former adviser to Margaret Thatcher, said banks should not be ashamed of rewarding their staff.

Speaking to an audience at St Paul's Cathedral in London about morality in the marketplace last night, Griffiths said the British public should "tolerate the inequality as a way to achieve greater prosperity for all".

9. Supplyside Jesus - An excellent antidote to the story above is this animation by Al Franken about supply side economics. HT Lew Burton

10. Here's Jon Stewart on the Dow's return to the 10,000 mark. It means we can party like it's 1999 all over again. Hooray.