Top 10 at 10: Gaynor vs Gibbs; Brian Fitzgerald and Strategic; May Wang's grumpy creditors; Golden Merc; Dilberts

Here are my Top 10 links from around the Internet at 10 after 11. I welcome your additions and comments below or please send suggestions for Wednesday’s Top 10 at 10 to bernard.hickey@interest.co.nz .  We migrate our lemon flutes slowly at interest.co.nz to make sure that they don't look like satan is licking his brain... 1. Getting stuck in - Brian Gaynor did a rare thing for a fund manager over the weekend. He put his head above the parapet and publicly criticised a high profile director. He even called for someone (GPG's Tony Gibbs) to be sacked by investors. New Zealand is a cosy place where people have long memories. Public criticism is dangerous and uncommon. This criticism, however, seems well justified. Gaynor used his Saturday column in the NZHerald to point out GPG's failures and high salaries for executives, in particular Tony Gibbs' NZ$21.7 million in 6 years.

The company has underperformed the benchmark NZX50 Gross Index in four of the past five years and had a negative 2009 return of 4.9 per cent, including dividends and 1 for 10 bonus issue, compared with an 18.9 per cent appreciation in the benchmark NZX50 Gross Index. GPG has had a negative return of 28.6 per cent since the end of 2004 compared with a positive 6.6 per cent return by the NZX benchmark index. The directors have been extremely well paid even though the company has underperformed the NZX by a wide margin. Since the end of 2004, Tony Gibbs has had total remuneration of $23.1 million. Blake Nixon, who is based in London, has earned $17.7 million and Gary Weiss $21.7 million. The company's performance does not justify these huge remuneration packages.

2. Connections revealed - Tim Hunter at the Sunday Star Times does a nice job of revealing some of the close connections between 'consultant' Brian Fitzgerald and Strategic Finance in a piece detailing how some executives face being called on their personal guarantees, including Fitzgerald. Hunter also points to some interesting dealings in the Queenstown region after Strategic froze payments...

Meanwhile several of Strategic's loans are likely to come under scrutiny, including a $31m loan made to South Island developer Philip Burmester in November 2008, four months after Strategic defaulted on its debts and a month before its moratorium was approved. The loan financed Burmester's purchase of the Bendemeer subdivision near Queenstown in a mortgagee sale from Strategic, lender to previous owners Richmond Paynter and Ross Allan who bought the site for $24m in 2003. The property has seen little action since then and remains unsold. The Star-Times understands a conditional deal with a separate buyer is now in place. In any event, the price is likely to be closer to $20m than $30m, leaving a shortfall to Strategic. According to Strategic's lending policies a loan of that size would normally be covered by a personal guarantee from the borrower, but there remains some doubt over whether Burmester was required to provide one. With Burmester known to have a separate business relationship with Fitzgerald, there are concerns – flatly denied by Strategic – the deal was a non-commercial transaction. Fitzgerald told the Star-Times in December 2008 the lending was "absolutely prudent" and the transaction was on "normal commercial terms for loans of that type".

3. On her tail - Various creditors are chasing May Wang of Natural Dairy/Crafar fame, Greg Ninness reports in the Sunday Star Times.

THE CHINESE businesswoman trying to orchestrate a $1.5 billion buy-up of this country's dairy assets is likely to face further court action from unhappy creditors this week. The Sunday Star-Times understands Hawke's Bay-based Wine Country Credit Union will file summary judgement proceedings next week in relation to a loan it made to May Yan Wang. It is believed Wang defaulted on the loan and skipped the country without making any arrangements over the debt, which is understood to total about $300,000. Wang is also believed to owe a significant amount of money to Kiwibank which may join Wine Country Credit Union's proceedings.

4. Chart of the day - Alistair Helm over at unconditional has done a great job of pulling together a chart showing the proportion of existing homes being sold in any one month since 1992. It shows (I think) we are in a new 'normal' of lower turnover. I talk more about the 'new normal' in my NZHerald on Sunday column here.

Alistair says the figures show the 2002 to 2007 period showed volumes marginally below the low the run average, but that we are seeing abnormally low figures now.

Based on these statistics it might be safe to call a normal market around 0.5% of all properties selling in a month. That ratio based on the current number of residential properties at 1.55 million would mean an average monthly sale of 7,727. The last time the monthly sales of residential property in NZ exceeded this level of 7,727 was November 2007 – 27 months ago. The most recent 12 months of sales total just 69,390 properties an average of 0.37% of all properties per month. The fact is that based on the current state of the property market sales would need to rise by 34% to just reach what we might call normal.

5. Inevitable transformation - The Economist has a nice overview piece here on how US consumers are spending less and saving more. It also has a few interesting factoids on how the US hopes to export its way back to health on the back of demand from emerging economies. Ironically, theEconomist points to the success of 'Avatar' as a sign America can export its high-tech creativity to the rest of the world...

Consumer debt rose from an average of less than 80% of disposable income 20 years ago to 129% in 2007. If other crises of the past half-century are any guide, America’s consumers will spend the next six or seven years reducing their debt to more manageable levels, reckons the McKinsey Global Institute. This is already changing the composition of economic activity. Consumer spending and housing rose from 70% of GDP in 1991 to 76% in 2005 (see chart 1). By last year it had fallen back to 73%, still high by international standards. As consumers rebuild their savings, American firms must increasingly look abroad for sales. They have a lot of ground to make up. Competition from low-wage countries, mostly China, has increasingly taken over the markets of domestic industries such as furniture, clothing or consumer electronics. Yet shifts in the pattern of global growth and the dollar are laying the groundwork for a boom in exports. “There’s a world view that the United States is the consumer of the world and emerging markets are the producer,” says Bruce Kasman, chief economist at JPMorgan Chase. “That has changed.” He reckons that America will account for just 27% of global consumption this year against emerging markets’ 34%, roughly the reverse of their shares eight years ago.

6. Evaluating credit risk - Jim Grant from Grant's Interest Rate Observer has written a 'prospectus' for US debt issues. Here in this video below he talks with Bloomberg Radio about his prospectus.  He reveals the Federal Accounting Office has found US$98.7 billion of incorrect or dodgy payments by the US government to suppliers. Tyler Durden at Zero Hedge points out the following.

Grant also discusses the Coinage Act of 1792, whose section 19 stipulates "that the penalty for anyone who would debase the coinage of the US, is death." By that logic, a firing squad may soon need to be sequestered to Washington. Grant's concludes that there is a "great suspension of disbelief in out US monetary system on behalf of the world over. One wonders when people will say no."

7. Currency War thaw? - Beijing domiciled economics professor Michael Pettis has written another long thinkpiece on what might happen in the US vs China currency battle. He points to a thaw in relations for now after Obama spoke to Hu Jintao on the phone. He's not confident about the outcome. He points to some particularly curly problems in his post, particularly how America doesn't want to hurt consumers and how China doesn't want to hurt producers. Hint: Both will have to take pain for any real adjustment to take place.

I hate to be a pessimist, but this might be very temporary. Unless the US and China, with the involvement of Japan, Germany, and deficit Europe, don’t work out very quickly a real agreement, in which surplus countries make serious efforts to create domestic demand over the next several years, and to reduce their surpluses, in exchange for which the deficit countries agree to slow down their domestic adjustments, the fight will only be very temporarily postponed, and the next round will be much angrier. When people argue that the US savings rate must rise, and at the same time argue that it is unfair to penalize US consumers (which in this context mean removing foreign subsides for consumption), I am always seized with a sense of unreality. We are saying that we must correct the imbalances but it must be done at no cost to the consumer. I am not sure that is going to be easy. If we subsidize producers to make them produce more, it will be done at someone’s expense – either US taxpayers or foreigners. If we penalize consumers (by removing the existing implicit subsides), clearly they are bearing the cost directly. By eliminating sub-prime lending, we penalized American consumers, and willingly or unwillingly we are going to continue doing so until consumption returns to a more reasonable level. One way or the other, rebalancing the US economy means tilting away from consumption and towards production, and although we can theorize about painless ways of doing it (Get Washington to stop wasting money! Improve education and infrastructure investment!) the fact is that in the short run it will be very hard to do so without penalizing consumption. By the way China faces the obverse problem. For years Beijing has insisted that it wants consumption to rise as a share of national income, and instead it has declined. Why? Because Beijing wants to tilt the balance towards consumption without having producers pay the cost. In other words it wants producers to continue benefiting from excessively low interest rates and an undervalued currency while exhorting consumers, who pay for the low interest rates and undervalued currency, to buck up and consume more. That seems to me why this whole rebalancing process is going to be a lot more difficult for both countries than we currently expect. Both countries are eager to rebalance, and even more eager to avoid the price of rebalancing – or better yet, to shift it onto someone else. Perhaps there is a realistic way to achieve both, but it isn’t obvious to me.

8. Panda speaks - Mish from Global Economic Analysis carries an email from a correspondent who calls himself Panda. He is a Chinese expat living in America, but who has close connections to the mother land and knows what's happening in the real estate market there. He points out how the housing boom there in the last year has made housing unaffordable and was only possible by 'stealing' the savings of future generations. Sound familiar?

The average apartment (1000 sq feet) will cost $90,000. This comparable with US condo prices in a second tier city. The price/income ratio is 25.7 for a single buyer! Even with a two-wage-earner family, the ratio is larger than 10. For Beijing and Shanghai, housing is much more expensive. In Shanghai for example, the price for decent area is around 30000-Yuan/sq-meter, i.e., around $440/sq-feet. And yes, they are only condos/apartments. Hence, a 1000sq feet apartment will cost around $440,000. Yet the average college graduate earns only $5500/year. How can they afford it? Short answer is they cannot. For the few who managed to buy in recent years, they dipped into the life-time savings of their parents, or even grandparents. One house deprived several generation's wealth in this case.

9. Totally relevant picture - This is a picture of Mercedes specially built for an Abu Dhabi oil billionaire. It has a 1,600 horsepower V10 turbo engine and is painted in white gold. Some people have too much money. HT Troy via email.

10. Totally irrelevant video - Here's how to quit in style. The tiger on the left in this very serious ballet is so fired. But it was fun watching him quit on stage.