Top 10 at 10: Chicken feet fight; PGC in Jacks Point?; PGC like a 'speculative IPO'; 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 suggestions for Tuesday's Top 10 at 10 to bernard.hickey@interest.co.nz We do not have a procedure for writing policies at interest.co.nz... 1. Just what we don't need - Trade tensions between China and United States are escalating despite an apparent backdown in Washington. FT.com reports that China launched anti-dumping and anti-subsidy investigations into US exports of chicken feet and other chicken products to China over the weekend.

The Obama administration on Friday praised a (congressional) decision to lift import restrictions and replace them with stricter inspections of Chinese supply chains, after the main opponents of Chinese poultry imports in Congress withdrew support for a blanket ban.

That decision did not stop China's ministry of commerce from launching investigations into US chicken imports two days later in a move the US poultry industry has warned could seriously harm trade with its biggest export market.

Beijing's decision to pursue aggressive trade action in the face of conciliatory moves from the US comes at a time of rising bilateral trade tensions. China has already banned imports of US chicken from several states and said it would launch an anti-dumping investigation into imports of US car parts immediately, after Washington's decision to impose emergency tariffs on Chinese tyres two weeks ago.

2. 'Speculative irresponsibility' - Queenstown property developer Rod Nielsen has been declared bankrupt by the High Court in Christchurch and Justice Paul Heath has ruled it wants his 'commercially irresponsible and speculative' business practices restricted, the Press reported. And wait for it....Rod Petricevic is involved...now there's a surprise...

Nielsen borrowed an original sum of $7.5m from Bridgecorp in late 2005 to fund the Lake Esplanade development in Queenstown. The development was never completed and Bridgecorp, as creditor, had been chasing Mr Nielsen for the money since. "Mr Nielsen operated a speculative business in good financial times and, I infer, did not make adequate provision to deal with any adverse financial conditions that might arise," said Justice Heath. All developers needed to heed the potential downside of ambitious projects, he said. "Property developers cannot do business on the basis that the market will always be buoyant. Mr Nielsen must take responsibility for being, at best, imprudent or, at worst, commercially irresponsible."

3. PGC acquires the smell of Jacks Point? - Tim Hunter at the Sunday Star Times digs into the morass of deals accompanying PGC's monster rights issue and the role of PGC's biggest shareholder George Kerr. He finds a few things. It seems PGC was on the verge of buying a bunch of Kerr's assets, including property around Jacks' Point in Queenstown, but has now pulled out because of ...ah...sensitivities... Oh dear.

Through a spokesman, it told the Sunday Star-Times: "There are no plans to purchase other assets from [George Kerr] the transaction that was announced on the 21st of July is the transaction." It declined to identify what assets it was considering buying, but Kerr's New Zealand assets include large property interests, particularly around the Jacks Point development in Queenstown. PGC's about-face comes amid increasing sensitivity about sweetheart deals, with the stock exchange imposing extra conditions on its share offer.

4. Speculative IPO - Brian Gaynor does an excellent job in his NZHerald column of analysing PGC's monster rights issue to raise around NZ$300 million. He is very sceptical when comparing it with Rakon's issue also happening now. Here's a taste.

The $13 million fees represent a whopping 4.8 per cent of the $270 million to be raised.  Pyne Gould has prospective net earnings of $22.2 million for the June 2010 year with Marac contributing $19.6 million on a pre-tax basis. The prospective net earnings represent a P/E of around 13 at the issue price of 40 cents a share. The big challenge for Marac is to transform its operations from a high-risk finance company, with high margins between borrowing and lending rates, to a low-risk bank where margins are much thinner. Pyne Gould argues that Marac will lend to the SMEs (small to medium enterprises) where margins are higher. As a result its Marac 2010 forecast represents a return of just over 1 per cent on total assets whereas the two newest domestic owned banks, KiwiBank and SBS (Southland Building Society) Bank have returns on total assets of 0.6 per cent and 0.5 per cent respectively. Pyne Gould is predicting the best of both worlds for Marac; it will be granted a banking licence but will continue to achieve the high margins usually associated with finance companies. Pyne Gould will be a success if Marac obtains a banking licence, and transforms itself into a high-margin bank, but $270 million is a massive amount of money if it doesn't achieve these goals. In this regard the Pyne Gould capital raising is somewhat similar to the 42Below and Xero IPOs as the commercial viability of the proposed business model is highly uncertain and greatly dependent on the expertise of the group's new management team.

5. Really? - The Sunday Star Times went big with mortgagee sales data showing, apparently, 1 in 20 sales being mortgagee sales in July. Alistair Helm at realestate.co.nz does a nice job of fisking the report on the data. I agree that mortgagee sales are now dropping off and it's still a relatively small proportion of sales. 6. Tax risk - Nancy Miller at TrueSlant follows up on Arthur Laffer's piece from a few days back on how higher taxes in the 1930s were partly responsible for the depth of the Depression.

Bernanke has declared the end to the recession. Technically, he may be correct. But the economy is in a precarious state: The huge deficit threatens dollar stability and our ability to fund our spending; unemployment means consumers won't bailout the economy anytime soon. Raising taxes to fulfill the Obama Administration wish-list is tempting but clearly unwise.

7. Big tumour - Here's a fantastic chart courtesy of the New Republic showing how Wall St grew much faster than the rest of the US economy after the mid 1980s, which unsurprisingly, is when Greenspan put on his put and gave Wall St the biggest get out of jail free card in the history of the world. Wall St used it big time in the last year. Here's Princeton's Hyun Shin on what was going on.

The greater detail afforded by the chart in log scale reveals that the securities sector kept pace with the rest of the economy until around 1980, but then started a growth spurt that outstripped the other sectors. On the eve of the crisis, the securities sector had grown to around ten times its size relative to the other sectors in the economy. Clearly, such a pace of growth could not go on forever. Even on an optimstic scenario, the growth of the securities sector would have tapered off to a more sustainable pace to keep in step with the rest of the economy.

8. Deflation crisis - Ambrose Evans Pritchard strikes again at The Telegraph with a detailed look at what's happening to money supply growth in the developed world. It's not pretty. It all signals a double dip recession next year and deflation.

Private credit is contracting on both sides of the Atlantic. The M3 money data is flashing early warning signals of a deflation crisis next year in nearly half the world economy. Emergency schemes that have propped up spending are being withdrawn, gently or otherwise. We are moving into a phase when most OECD states must retrench to head off debt-compound traps. Britain faces the broad sword; Spain has told ministries to slash 8pc of discretionary spending; the IMF says Japan risks a funding crisis. If you look at the sheer scale of global stimulus this year, what shocks is how little has been achieved. China's exports were down 23pc in August; Japan's were down 36pc; industrial production has dropped by 23pc in Japan, 18pc in Italy, 17pc in Germany, 13pc in France and Russia and 11pc in the US. Call this a "V-shaped" recovery if you want. Markets are pricing in economic growth that is not occurring. The overwhelming fact is that private spending has slumped in the deficit countries of the Anglosphere, Club Med, and East Europe but has not risen enough in the surplus countries (East Asia and Germany) to compensate. Excess capacity remains near post-war highs across the world.

9. 'It's a plot' - Chris Martenson writes an interesting piece looking at the plan announced late last week by central banks to withdraw US dollar swap arrangements. He smells something fishy. He reckons the Fed may have tipped off US investment banks during the September crisis so they could make a killing. I'm not sure he's right, but it's an interesting read. He wants the Fed audited, which I agree with.

The announcement of the unwinding of the dollar swaps seems largely to be a matter of announcing something that is already mostly over.  More than 90% of the program has already been unwound, and there is only roughly $50 billion left to go. Noting the tight correlation between the dollar index and the dollar swaps, anybody with insider information to these programs would have been ideally situated to thoroughly clean out the other market traders, who were in the dark as to the timing and magnitude of the program.  It could merely be coincidence that the very same Wall Street firms with daily contact with the NY Fed staff secured outsized gains during this period of time, but it is hard to trust that this was mere coincidence, given all that we've recently learned about Wall Street's inability to control its greed. If the Fed and Wall Street have nothing to hide, then they should welcome an audit and investigation with open arms. Otherwise, investors all across the globe may come to the unfortunate conclusion that the playing field is tilted.

10. When will they rise? -  Vitaliy Katsenelson at Zero Hedge wonders when US interest rates will rise and picks out a couple of key factors. I've always wondered why the Chinese and Japanese keep piling into US Treasury bonds, but that may not last for too much longer.

China is the obvious culprit as it's the largest holder of our fine Treasury obligations.  If China's exports to the US don't recover to the pre-Great Recession level then, considering its large overcapacity and bad-debt problems, it may quite suddenly find itself unable to buy as many of our bonds/bills. Or even worse, it may start selling them. But this scenario is one I've discussed in the past more than once.

Then you start looking down the list of who's who in the ownership of our government debt, and you find Japan only slightly behind China. Japanese interest rates were circling around zero, but they still failed to stimulate the economy that's been in a recession for as long as I can remember. The Japanese savings rate was very high, and thus, as government debt ballooned over the last two decades, it was happily absorbed by consumers who were net savers "“ they had extra funds to invest. However, Japan has one of the oldest populations in the developed world. As people get older they save less; thus the savings rate has been on a decline in Japan. (The fact that their exports fell 36% did not help their savings rate, either. To save you need income).