Top 10 at 10: May Wang strikes again; China housing bubble tales; Deflation vs Inflation; Dilbert

Here are my Top 10 links from around the Internet at 10 past 4. I welcome your additions and comments below or please send suggestions for Thursday’s Top 10 at 10 to bernard.hickey@interest.co.nz My apologies for lateness today. I have been in Wellington on a speaking engagement. 1. Those crazy Crafars - And the positively controversial May Wang. Bloomberg points out today that Natural Dairy (NZ) Holdings Ltd has (apparently) done a deal to buy dairy farms, livestock and other chattels in New Zealand for NZ$1.5 billion from the Crafar Brotherss....Sheesh. It's hard to believe and probably not true, but something is cooking up there on the Volcanic Plateau between the Crafars and the Chinese. The mercurial (and seriously out there) May Wang is at the heart of things. There is much more to this than meets the eye. Receiver Michael Stiassny has already denied a deal has been done.

The acquisition, which is worth more than 7 times Natural Dairy’s market value, will be paid for partly in cash and partly through the issue of convertible bonds, the company said in a statement to the Hong Kong stock exchange yesterday without giving further details. The acquisition, which is worth more than 7 times Natural Dairy’s market value, will be paid for partly in cash and partly through the issue of convertible bonds, the company said in a statement to the Hong Kong stock exchange yesterday without giving further details.

2. 'Just a front' - Richard Rennie at NZFarmers Weekly does a nice job of uncovering some of the...er...topsoil that has settled around Ms Wang and the Crafars over the last few years. Apparently, she thought she didn't need to apply for Overseas Investment approval...A right cowgirl.

The Chinese business woman fronting a large scale investment in New Zealand dairy farms has defended her chequered business history here. May Wang has two liquidated businesses and owes hundreds of thousands to creditors and business partners through a failed property and hotel company, Dynasty Group. She left New Zealand in October 2008, the day after Dynasty Group was liquidated, but returned last year to lead Chinese-backed efforts to buy a large number of dairy farms from the CraFarms group, now in receivership, and more recently, two dairy units owned by NuGen Farms, now in receivership but formerly owned by Allan Crafar's son Robert. Wang is the NZ face of UBNZ Assets Holdings, the company that has bought at least four Crafar dairy properties here, despite still requiring Overseas Investment Office (OIO) approval.

3. Deflation pressures building - Mish at Global Economic Analysis has pulled together a bunch of charts showing deflationary pressures are growing in the United States. More ammo in the perennial debate about whether money printing will drive hyper inflation or whether debt deleveraging will drive deflation. Your view? Hammer it out below.

4. Bubble, bubble, toil and trouble - Bill Powell from Time has an excellent piece on the housing bubble in China.

According to data compiled by real estate consultancy Colliers International, residential prices in 70 large and medium-sized cities across China soared in 2009, with 50% to 60% increases in Beijing and Shanghai. Real estate mania has become so intense that it has spilled over into pop culture. Last year one of the most popular television shows was a weekly drama entitled Wo Ju (literally "Dwelling Narrowness"), which focused on the plight of a young couple who spend two-thirds of their monthly income keeping up the mortgage on a tiny Shanghai apartment.

Here a taxi driver, Yang Jinyu, explains his rationale for buying apartments and not renting them out...

Yang says he hasn't even tried to rent out two of his three apartments because "it's not that important to gain income from them; there is security in just owning them. They are paid for, and I know that if I ever get into any kind of economic trouble I can sell them. That's real security."

5. So what about a stronger yuan then? - Michael Pettis has a long and interesting post here on what a yuan revaluation would mean for China. It's well worth the effort to read the whole thing. It brings to light exactly how much of a pickle the global trading and capital flow system is in because of these long term imbalances. Unpickling the pickle is going to be darned hard. As an aside Pettis makes the good point that if China decided to dump US Treasuries it would actually shift wealth to Americans and slam the Europeans in the process. Here's the insight.

China’s selling dollars and buying something else would allow the US to get even more bang for its protectionist buck, probably at poor Europe’s expense. I would also add that the main long-term impact of dumping USG bonds might be no more than to cause a liquidation of Chinese assets at very low prices, and an equivalent transfer of wealth from China to the US (or to others likely at some point to buy cheap dollar assets). Remember that at the beginning of WW1 something similar happened. In an urgent attempt to raise gold reserves to pay for the war, in the late summer of 1914 European belligerents dumped onto US markets what amounted to a far greater share of US assets than China currently holds. This caused about six months of havoc, and many sleepless nights in New York and Washington. But the US responded by putting into place temporary capital and stock market controls, and when the dust settled, the net effect was one of the most massive short-term transfers of wealth ever recorded from one group of countries, the European belligerents, to another, the US. European dumping caused a collapse in prices, and US investors ultimately scooped up the assets up very cheaply.

Here's what the revaluation would mean for China.

A revaluation shifts wealth from the Chinese government and the manufacturing sectors (and some wealthy Chinese) to Chinese households — which, by the way, is pretty much what is meant by “rebalancing” in the Chinese context. There are many other ways besides revaluation to shift income this way. The PBoC can raise deposit rates, wages can rise faster than productivity, companies can be privatized by giving away shares to the public, and so on. They all have the same effect. They shift resources to households and away from producers, infrastructure investment, and real estate developers. This allows household income to grow relative to national income, which ultimately increases the consumption share of GDP. A rebalancing is necessary for China, as nearly everyone in the leadership knows. This will involve, among other things, a significant revaluing of the currency. But rebalancing cannot happen too quickly without risking throwing the economy into a tailspin. That cannot and should not be a part of the US or Chinese policy objective. By the way if China is forced to revalue the currency too quickly, it will have to enact countervailing policies — lower interest rates, suppress wages, increase credit and subsidies — to protect the economy from falling apart, and these will exacerbate other imbalances that may be even worse than the currency misalignment. Currency revaluation, then, should be part of a broader adjustment process.

6. 'Politically powerful landowners' - Here's an interesting (if old) Australian research paper on the issue of a land tax. It concludes it'll never work because landowners won't allow it. There's a circular logic there I can't quite understand.... HT BG via email.

It has been argued by advocates of land value taxation that the centrepiece of tax reform should be land taxation, because of the efficiency, equity, simplicity and ethical advantages of taxation of the unearned increment in land values. This paper critiques these arguments. It is shown, by historical reference to the fate of land value taxation in the Australian states, to the ACT public leasehold system, and to the Commonwealth capital gains tax, that such tax reform will never succeed precisely because of its advantages, which adversely impinge on the interests of politically powerful landowners.

7. Plenty to chew on - Here's Jim Rogers on everything relevant at the moment: the pound, the euro, the yuan debt and the end of the world as we know it...and he feels fine... 8. Just hilarious - It turns out one the biggest speculators picking a Greek sovereign default was a state owned bank in ... wait for it... Greece. Here's the report from local newspaper Kathimerini. HT Gertraud via email

State-controlled Hellenic Post Bank (TT) spent nearly 1 billion euros last year to secure its positions against the possible bankruptcy of the Greek government, according to documents seen by Kathimerini. In August, the bank bought credit default swaps (CDS) – a form of insurance on financial instruments – worth 950 million euros when the spread on the Greek five-year bond over the German Bund was at 135 basis points. CDS products allow investors to purchase protection against the default of debt issued by governments, hedging existing positions. TT’s management, which changed after the Socialists took power in October, sold the CDS when the spread was at 235 basis points in December, earning a profit of some 35 million euros, the documents show.

9. Peak oil - The former chief UK scientist reckons global oil reserves have been systematically over-estimated, The Telegraph reported.

The world's oil reserves have been exaggerated by up to a third, according to Sir David King, the Government's former chief scientist, who has warned of shortages and price spikes within years. The scientist and researchers from Oxford University argue that official figures are inflated because member countries of the oil cartel, OPEC, over-reported reserves in the 1980s when competing for global market share. Their new research argues that estimates of conventional reserves should be downgraded from 1,150bn to 1,350bn barrels to between 850bn and 900bn barrels and claims that demand may outstrip supply as early as 2014. The researchers claim it is an open secret that OPEC is likely to have inflated its reserves, but that the International Energy Agency (IEA), BP, the Energy Information Administration and World Oil do not take this into account in their statistics.

Totally irrelevant Video - Sonar by Renaud Hallee Sonar from Renaud Hallée on Vimeo.