Top 10 at 10 past 10: A tale of two David Hendersons; Bond vigilantes prowling; 10 Chinese red flags; Dilbert

Here are my Top 10 links from around the Internet at 10 past 10. I welcome your additions and comments below or please send suggestions for Friday’s Top 10 at 10 to bernard.hickey@interest.co.nz We have no monkeys with no hammers at Interest.co.nz 1, The Auckland David Henderson - It's always been a curiosity of New Zealand's property development and finance sector that there are two David Hendersons who are controversial and have both spent lots of 'secured debenture' investors' money. The Christchurch David Henderson is the man behind the book/movie 'We're here to help'  about his battle with the IRD. He was also behind 'Hendo's hole' in Queenstown, which was a major factor that dragged Hanover Finance into the mire. He is now battling various legal actions over debts linked to various bars and hotels. Then there's the Auckland David Henderson, who is the one behind the development of the Hilton Hotel and other buildings on the waterfront and has been convicted of procuring cocaine for his own use. Now Anne Gibson in the NZHerald reports he is fighting to stave off personal bankruptcy.

Henderson was one of Auckland's most influential developers, credited with projects worth about $1 billion but now many of his companies are in liquidation. Yesterday, he was at the Northern Club in central Auckland, seeking unsecured creditors' patience until he could find money. He said after the creditors' meeting he was "honest, a fighter" and would not give in. Creditors were claiming $166 million in personal guarantees, he said. "I'm not going to run and hide in a corner. I will reinvent myself in some other way. I'm not a person that takes my bat and ball and disappears. If the city doesn't have developers like me who take risks, you don't have a progressive city," he said.

Most interestingly, it seems the Auckland Henderson's Kitchener Group had/has many close ties with Strategic Finance, now in receivership. I wonder how Jock Hobbs and all those Mums and Dads are feeling right now...

Marc Lindale, an executive director of the failed Strategic Finance, was one of the businessmen who filed into the Northern Club to discuss money behind the ivy-covered walls. Strategic and Kitchener's fortunes have been closely linked. Strategic had its Auckland base in Shed 22 until PricewaterhouseCoopers were appointed receivers this month. Strategic associates, including parties connected to Lindale and associate Brian Fitzgerald, have extensive wharf interests and manage the six-building waterfront complex.

2. Electricity shortage? - Brian Fallow at the NZHerald reports on a warning from the Electricity Commission about a shortage of new electricity generation capacity that could create shortages by the winter of 2013. It's noticeable that wholesale electricity prices (check out our interactive chart here) have begun nudging up again in the last couple of months. Inflation anyone?

Because of the lead times involved generators will need to commit to some investments within the next 12 months, the commission says, but despite the need for new generation, investment appears to be slowing. More than 600MW of new generation that was rated as a medium probability or higher for this year or next year in the previous annual assessment has since been deferred until at least 2013 or cancelled.

3. British borrowing binge - UK chancellor of the exchequer Alistair Darling last night unveiled the last Labour budget before the May budget. It included forecasts of borrowing of more than 10% of GDP for the next two years and an actual increase in real public spending. Ambrose Evans Pritchard at The Telegraph points out the bond vigilantes are restless.

If Alistair Darling was to convince global investors that Britain deserves to keep its AAA-rating and that its debt is more or less comparable to the bonds of sovereign peers, he needed to tighten the Government’s fiscal belt by a couple of notches at least. Pledging to raise real public spending by 2.2pc over the next year is not what markets had in mind. The world’s largest bond PIMCO warned earlier this year that Britain’s Debt Management Office is sitting on nitroglycerine, and nothing changed its view today. It is remarkable that a government with a budget deficit of 11.8pc of GDP thinks it can safely expand a state sector already consuming 52pc of GDP, or that it can convince global markets that brisk growth of 3.5pc a year will whittle away the debt. Marc Ostwald, a bond vigilante at Monument Securities, said Labour is still scattering money it does not have to hold the public sector vote. "We are heading for a downgrade because I don’t think this is going to look like a credible plan to Standard & Poor’s or the other rating agencies."

The key will be who wins the election in May and what they do afterwards. May could be a rocky period on the global financial markets.

Rival S&P has already placed the UK on "negative outlook". It said tartly today that it was waiting to see "concrete details of the next government’s deficit reduction plan before deciding on any rating action."

4. The heat is on again - Fitch's downgrade overnight of Portugal's sovereign debt rating to AA has refocused attention on the woeful budget positions of the PIGS (Portugal, Ireland, Greece and Spain). The euro is dropping like a stone and there is the potential for more pain later this week when leaders meet to decide on whether to push Greece into the arms of the IMF. Again, without wanting to labour the point, this is all about the power of de-leveraging and how the indebted developed world faces a decade of more of slow growth, budget cutbacks and grinding reduction of debt/gdp ratios. We will not be immune eventually. Bloomberg has the story.

“The issue for Portugal is that it faces a chronic lack of competitiveness that has delivered only anemic growth,” Harvinder Sian, a senior bond strategist at Royal Bank of Scotland Group Plc in London, said today in an e-mailed note. “Portugal will be rated A- within the next few years and ultimately below this to a BBB handle.” The premium that investors demand to hold Portuguese 10- year government bonds over benchmark German securities of similar maturity widened 1 basis point to 125 basis points today. It averaged 31 basis points in the past 10 years. The Portuguese and Greek economies may face a “slow death” as they dedicate a higher proportion of wealth to paying off debt and investors drive up government borrowing costs, Moody’s said on Jan. 13. While the two countries can still avoid such a scenario, their window of opportunity “will not be open indefinitely,” Moody’s said. The Portuguese parliament will debate the government’s austerity plan tomorrow. Backing for cutting the deficit by 2013 is “crucial,” the Ministry of Finance said today in a statement.

5. Turning Japanese - Meanwhile the Japanese government is blasting ahead with more spending and borrowing. It passed another massive budget overnight in another attempt to restart an economy in recession for 20 years after the collapse of its property bubble in the late 1980s. Worryingly, the new Democratic Party government has also abandoned plans to privatise Japan's mammoth postal banking system, which was a key mechanism for funneling private savings into government spending through endless bond issues. It seems the previous government's enthusiasm for trying to fix this Post bank sclerosis problem made a bunch of pensioners grumpy. They vote and, lo and behold, they have decided to avoid taking the pain now and are passing it on to younger generations. Sound familiar? Here's the New York Times' version.

The Japanese government pushed a record ¥92.3 trillion budget through Parliament Wednesday aimed at stimulating growth in the long-stagnant economy — another round of spending that will add to Tokyo’s already burgeoning public debt. Some economists worry about runaway government spending in Japan, which is already saddled with a public debt twice the size of its economy — the worst ratio among industrialized countries. The government said it would issue a record ¥44 trillion in bonds to finance the budget for next year and cover for a sharp shortfall in tax revenue. Japan’s fiscal largesse has long been supported by Japan Post, the country’s biggest customer for Japanese government bonds. A de-facto government guarantee on deposits made at the postal bank has attracted huge funds: about ¥300 trillion, or more than the annual gross domestic output of France. “Reversing postal privatization means grave distortions will remain in the Japanese economy. The state will now be able to continue offloading bonds to Japan Post, and that will encourage reckless government spending,” said Satoru Matsubara, a professor of economic policy at Toyo University.

Looks like the bureaucrats and pensioners won, which means Japan stays mired in recession for longer and its drift lower under the weight of old people goes on. Japan has its own problems, but it's worth watching how they handle (or not) their ageing population because they are seeing the results before all of us. 6. Sacre bleu (or should that be Sacre green verte) - Now the French have abandoned their plans for a carbon tax in the wake of bad election results and renewed public doubts about whether humans really do cause global warming. The New York Times has the story. HT Andrew via email.

After months of political rancor and legal obstacles, the French government on Tuesday shelved its plan to introduce a tax on carbon emissions that had been a cornerstone of President Nicolas Sarkozy’s enviromental policy. Ministers and members of the governing UMP party said the tax would put French companies at a disadvantage to their European neighbors, most of whom do not pay anything similar. But analysts said the drubbing handed to the center-right government on Sunday in regional elections brought the U-turn from Mr. Sarkozy.

7. Hoenig a hero - Kansas City Federal Reserve President Thomas Hoenig is shaping up as the rebel within the Federal Reserve who could easily be the next Federal Reserve Chairman if the political winds in Washington shifted towards something sensible. Now Hoenig has come out and backed Paul Volcker's rule to break up 'Too Big To Fail' banks. Here's the Reuters story.

Hoenig, among a small minority of Fed officials to openly call for banks deemed too big to fail to be broken up, argued the country's mammoth investment conglomerates had not served the broader economy well. "Adopting a version of the proposed Volcker rule would be healthy for long-term stability," Hoenig told a conference sponsored by the U.S. Chamber of Commerce. "We have seen the formation of a powerful group of financial firms." Hoenig said some of the push toward deregulation during the 1990s had been detrimental to financial stability, and needed to be reversed. In particular, he said big financial holding companies should not be allowed to trade for their own accounts, so-called proprietary trading. He said they should be forbidden from investing in or sponsoring their own hedge funds.

8. 'You must lend more' - UK Chancellor Alistair Darling banged his fist overnight and demanded that Britain's biggest banks (now partly government owned) must lend more. He's trying to turn back the tide of de-leveraging. Good luck with that.  Here's the Reuters story at The Globe and Mail.

Part-nationalized Royal Bank of Scotland and Lloyds must lend £94-billion to businesses in the next 12 months as part of government plans to boost Britain's economic recovery, finance minister Alistair Darling said Wednesday. That would mark an almost 20 per cent rise from gross levels the banks - which both failed to meet 2009/10 business lending targets - said they made available over the past 12 months. Getting banks to lend freely again is seen as crucial to engineering a sustainable economic recovery after an 18-month recession that wiped about 6 per cent off output. Both Lloyds, 41 per cent state-owned, and RBS, 84 per cent state-owned, said they complied with the “intent” of government targets but failed to reach the required net numbers last year, blaming a high number of firms repaying loans rather than borrowing. RBS Chief Executive Stephen Hester said last week it would take four years for borrowing appetite to fully return.

9. Ten red flags - Edward Chancellor of Jeremy Grantham's GMO funds management operation has issued a paper (available free with registration here) pointing out 10 reasons why China has a dangerous bubble. HT Troy via email. Ed Harrison at Naked Capitalism helpfully summarises the key points here. The 10 flags are:

1. "Great investment debacles generally start out with a compelling growth story." 2. "Blind faith in the competence of the authorities." 3. "A general increase in investment is another leading indicator of financial distress. Capital is generally misspent during periods of euphoria. Only during the bust does the extent of the misallocation become clear." 4. "Great booms are invariably accompanied by a surge in corruption." 5. "Strong growth in the money supply is another robust leading indicator of financial fragility. Easy money lies behind all great episodes of speculation from the Tulip Mania of the 1630s – which was funded with IOUs – onward." 6. "Fixed currency regimes often produce inappropriately low interest rates, which are liable to feed booms and end in busts." 7. "Crises generally follow a period of rampant credit growth." 8. "Moral hazard is another common feature of great speculative manias. Credit booms are often taken to extremes due to a prevailing belief that the authorities won’t let bad things happen to the financial system. Irresponsibility is condoned." 9. "A rising stock of debt is not the only cause for concern. The economist Hyman Minsky observed that during periods of prosperity, financial structures become precarious." 10. "Dodgy loans are generally secured against collateral, most commonly real estate."

Here's a special one for New Zealand. 11. "Someone called May Wang turns up in a helicopter on the Volcanic Plateau with NZ$1.5 billion of Chinese cash wanting to buy dairy farms and build factories, but she knows nothing about dairying..." 10. Totally irrelevant video - I couldn't resist. It's a trademarked (yes, yes, yes...) parrot called Snowball dancing to a song from the Back Street Boys. This video has 3.6 million views. Isn't the Internet a wonderful thing... HT Trevor Sew Hoy via email...i think...