My Top 10 at 10: China trumpets selling US Treasuries; Eerie parallels with August 1930; Dilbert; Arthritic horses

Here are my Top 10 links from around the Internet at 10am. I welcome any additions in the comments below or please send any suggestions for Monday's Top 10 at 10 to bernard.hickey@interest.co.nz We always share our information at interest.co.nz... 1. China is trumpeting that it actually sold US Treasury bonds in June despite heavy new issuance by the US government to fund its ballooning deficit, FTAlphaville points out. This is crucial because America needs China to keep buying these bonds or it may struggle to borrow and spend its way out of trouble without destroying the US dollar's reserve currency status. The assumption is that China is locked in a bear hug with the US money printing machine and can't extricate itself without trashing the value of its own assets. But maybe not...

The news was was pretty much triumphantly heralded by China's state-owned media. For instance, the People's Daily published the story under the headline "China massively offloads U.S. debt holdings [for the] first time in 2009"³.

However some clever analysts point out that China buys US Treasuries on the quiet through brokers in London and it may not have cut its holdings in total. Whatever, as FTAlphaville points out.

Of course, whether or not China is actually adding to its Treasury holdings is almost a moot point. The fact that it's happy to appear to be a net seller of US Treasuries, even going so far as to issue virtual press releases about it, is itself the news. China may not have found an alternative to USD-demoniated assets just yet, but it wants the world to know that it is looking for one.

2. This is an another issue to watch in China. It's fiscal and monetary stimulus is fading fast, as this piece in FTAlphaville points out, citing Standard Chartered analyst Stephen Green. It seems one of the benefits/problems of a command-style economy is that when the government pulls the lever back things happen fast, particularly when it directs the taxman to collect taxes.

China's fiscal stimulus has peaked, and its effect now seems to be fading. After a massive shot of spending hit the economy at the end of last year, the Ministry of Finance (MoF) is now dialling things back. We run into one of the classic problems with China's macro-management style: the tyranny of targets. While most economists would be counseling tax cuts and other measures to lighten the load for business, the MoF is doing its level best to hit its 8.2% total revenue target for 2009, causing a fair amount of misery for the corporate sector.

3. Governments are struggling sometimes to sell all this paper they're issuing to fund their deficits. Our own Treasury failed to get away a bill tender this week. Overnight Britain's Debt Management Office staged a lacklustre gilt sale with a coverage ratio of only 1.75, FTAlpaville reports.

Although we shouldn't really be surprised about the above considering the other main UK news on Thursday was the fact that the public coffers were overdrawn by some £8bn in July versus a surplus of £5.2bn the year before.

4. Tyler Durden at Zero Hedge has a concise explanation of why the markets have rallied. He writes compellingly about why this is a false rally and what could happen next. He is bleak. Take your meds before reading this.

What has our response been to the crisis... Mmmmm let me see: borrow 13% of GDP so we can keep it flat, change accounting for banks so we don't have to acknowledge losses (while criticizing Japan for allowing zombie banks to continue to operate in unspoken bankruptcy for years), put moratoriums on foreclosures in the most desperate states so the numbers appear to be improving, provide a second bailout to carmakers (but label it an effort for a greener planet, because everyone knows we really care) thereby propping up industrial production and sales (we'll worry about consequences of a drop once the stimulus disappears later). I am not bearish because I had an unhappy childhood, it's just that the numbers don't add up. Debt to equity ratios are way too high and demand is down 20% and cannot come back because of the consumer debt, so equity markets have very little value. It's a necessary correction, also coincidental with the baby-boomers retiring as they hold pretty much all risky assets and the next generation is not wealthy enough to take it over for them. A long term chart shows that when the 50 to 60 year-old populace decreases in size it's bearish for equity markets (it's good common sense if you think about it). Well, that age tranche is getting thinner in number right now. I could also mention unfunded future pension and healthcare liabilities. A sober economy where we have a contracting GDP and we pay off our debt while addressing the challenges ignored for too long is what we need to pave the way for the next 50-year bull market. If we decide to bankrupt our government instead we only increase chances of civil unrest, political instability and eventually war. It's simply ridiculous to think we can spend our way out of this to re-use a popular image...

5. The US Federal Reserve's Kansas City Governor Thomas Hoenig is the black sheep of the US governmental family. He calls a spade a digging implement regularly. Here in this Bloomberg video and more recent article he essentially says banks should be allowed to fail. He explains how this could be done. It's a pity that Ben Bernanke and Tim Geithner aren't listening to him. 6. Apparently the British recession is over, according to the Bank of England, the TimesOnline reports. This fits into the 'I'll believe it when I see it' category.

Detailed forecasts published by the Bank showed that gross domestic product (GDP) will rise by 0.2 per cent between July and September, marking the first economic expansion since the first three months of last year. The Bank expects the economy to continue to expand in the fourth quarter, by 0.4 per cent, and sustain the recovery throughout next year.

7. This site called newsfrom1930.blogspot.com is fun. It details the news of the day exactly 79 years ago to the day. It shows that in August 1930 people were seeing green shoots all over the place in the wake of the 1929 crash. We all know what happened next... HT to Steve Kean Keen in his Debtwatch, where he points out the eerie similarities.

It appears that, rather like an alcoholic who is an alcoholic long before she takes the pledge at an AA meeting, the public and commentators in 1930 didn't realise that a Depression has started. I feel the same way now.

Here's a sample from August 18, 1930.

Financiers and economists "somewhat befuddled" by current business situation; economy has descended from "the heights of the greatest business prosperity the world has seen," and it's difficult to "get their bearings in the new scheme of things." Most are "watching and waiting rather than predicting." Of course, things will eventually turn around, "and when the upturn does come it will be based on the most solid foundations in many years." In the meantime, the market is marking time.

8. As if we need any more proof. This piece from John Authers at FT.com shows how badly active fund managers did in 2008 versus passive fund managers. Active funds management costs too much and delivers too little. Active funds are just an employment scheme for stock pickers. And most of our KiwiSaver funds are still actively managed funds, as is the Cullen fund...

Active managers argued that they could raise cash, or move to defensive stocks, in a downturn. Passive funds would track their index over the edge of the cliff. But active managers, in aggregate, failed to do better than their indices in 2008. Numbers from Financial Research of Boston suggest active funds have lost money as a result. The 25 biggest US fund groups saw their assets fall 21.6 per cent in the 12 months to June. But Vanguard (-13.4 per cent), Barclays Global Investors (-2.7 per cent), and State Street Global Advisors (-0.7 per cent), all big passive investors, were less damaged. Assets grew at Pimco, best known for bonds.

9. This is a cracking read from Jesse over at Naked Capitalism on why the Austrian, Keynesian, Marxist, Monetarist and Neo-Liberal economists are all wrong. Jesse says it's all about median wages and their relationship to prices. It's packed full of juicy bits like these (and a great chart below):

US personal Income has taken its worst annual decline since 1950. This is why it is an improbable fantasy to think that the consumer will be able to pull this economy out of recession using the normal 'print and trickle down' approach. Until the median wage improves relative to the cost of living, there will be no recovery. The classic Austrian prescription is to allow prices to decline until the median wage becomes adequate. Given the risk of a deflationary wage-price spiral, which is desired by no one except for the cash rich, the political risks of such an approach are enormous. On paper it is obvious that a market can 'clear' at a variety of levels, if wages and prices are allowed to move freely.  The Supply side idealists (cash rich bosses, Austrians, Marxist, monetarist, and deflationist theorists) would like to see this happen at a lower level through a deflationary spiral. The Keynesians and neo-liberals wish to see it driven through the Demand side, with higher wages rising to meet the demands of profit in an inflationary expansion. Both believe that market forces alone can achieve this equilibrium. Across both groups runs a sub-category of statism vs. individualism. Unfortunately both groups are wrong. Both approaches require an ideal, almost frictionless, objectively rational, and honest economy in order to succeed. The Keynesians have a bit of an edge in this, because it is easier to control inflation than deflation in a fiat regime, and the natural growth of inflation tends to satiate the impulse to greed. The condition of the American economy is strikingly similar to the Soviet state economy of the last two decades of the 20th century. People are trying to sustain a system "as is" that is based on bad assumptions, unworkable constructions, conflicting objectives, and a flagging empire laced heavily with elitist fraud and corruption. The primary difference is that the US has a bigger gun and its hand is in more people's pockets with the dollar as the world's reserve currency. But the comparison seems to indicate that the economy must indeed fail first, before genuine change can begin, because the familiar ideology and practices must clearly fail before they can recede sufficiently to make room for new ways and reforms. A new school of Economics will rise out of the ashes of the failure of the American economy as happened after the Great Depression. Let us hope that it is better than what we have today. In the short term, what does all this mean? It means that until the banks are restrained, and the financial system is reformed, and balance is restored, there can be no sustained recovery.

10. This is a bit off the beaten track but should resonate with anyone who has worked in a big corporate. Ever been bored listening to a powerpoint presentation? Here's a BBC piece on the problem with powerpoint. It makes some great...ah...points.

If you have worked in an office in the Western world in the past 25 years, you will probably have sat through a PowerPoint presentation. But there's a problem. They're often boring, writes presentation expert Max Atkinson.

11 (Bonus!) Here's a 'Funny or Die' video for the weekend. Apparently, we have a major metaphor shortage in the financial world...not enough bets on arthritic horses... HT Alex