Top 10 at 10 past 2: New Wall of Debt; De-leveraging 101; Factory farm fear; The holy trinity of fat, sugar and salt; Dilbert

Here are my Top 10 links from around the Internet at 10 past 2. I welcome your additions and comments below or please send suggestions for Thursday’s Top 10 at 10 to bernard.hickey@interest.co.nz Apologies for the delay. 1. Here comes the wall of debt - The New York Times has written a useful piece pointing out the US$700 billion wave of maturing junk bonds that is due to hit the market from 2012 just as the US governments and others are borrowing heavily. We can be sure of one thing: interest rates will rise.

2012 also is the beginning of a three-year period in which more than US$700 billion in risky, high-yield corporate debt begins to come due, an extraordinary surge that some analysts fear could overload the debt markets. With huge bills about to hit corporations and the federal government around the same time, the worry is that some companies will have trouble getting new loans, spurring defaults and a wave of bankruptcies. The United States government alone will need to borrow nearly US$2 trillion in 2012, to bridge the projected budget deficit for that year and to refinance existing debt. Indeed, worries about the growth of national, or sovereign, debt prompted Moody’s Investors Service to warn on Monday that the United States and other Western nations were moving “substantially” closer to losing their top-notch Aaa credit ratings. Sovereign debt aside, the approaching scramble for corporate financing could strain the broader economy as jobs are cut, consumer spending is scaled back and credit is tightened for both consumers and businesses.

Even Moody's is worried.

“An avalanche is brewing in 2012 and beyond if companies don’t get out in front of this,” said Kevin Cassidy, a senior credit officer at Moody’s. Private equity firms and many nonfinancial companies were able to borrow on easy terms until the credit crisis hit in 2007, but not until 2012 does the long-delayed reckoning begin for a series of leveraged buyouts and other deals that preceded the crisis. That is because the record number of bonds and loans that were issued to finance those transactions typically come due in five to seven years, said Diane Vazza, head of global fixed-income research at Standard & Poor’s. In addition, she said, many companies whose debt matured in 2009 and 2010 have been able to extend their loans, but the extra breathing room is only adding to the bill for 2012 and after. The result is a potential financial doomsday, or what bond analysts call a maturity wall. From $21 billion due this year, junk bonds are set to mature at a rate of $155 billion in 2012, $212 billion in 2013 and $338 billion in 2014.

2. Tax crackdown - Australian authorities are cracking down on rich individuals with money tucked in other countries, Anthony Klan at The Australian reports. Any with money stuck here? This is all part of the global crackdown on tax havens by cash-strapped governments. This will be a theme of years to come.

THOUSANDS of high net worth investors using offshore tax haven accounts have been contacted by their banks and warned they could face huge penalties, following an Australian Taxation Office crackdown. The ATO has approached a string of locally operating foreign banks - including Swiss banking giant UBS - requesting they warn customers of the huge penalties they could face by failing to declare foreign income. Australian Financial Markets Association executive director Duncan Fairweather had recently written to about 50 banks, asking them to pass the warning on to clients on behalf of the ATO. "We have contacted all the foreign banks working in the Australian market and asked them to remind their clients they may have tax obligations in Australia," Mr Fairweather said.

3. Factory farmers - As we consider whether to put factory farms on the McKenzie Basin, New Zealand's brand guardians (and I hope that includes Fonterra) should have a look at the reaction to plans in the UK for a big factory dairy farm. They loathe the idea there. Just imagine if they knew that clean, green New Zild was planning something similar in the shadow of our most alpine of mountains, or already had industrial scale large herd farms? The Brits have long memories over Mad Cow. Here's CNN on the situation in Britain.

The plan for Britain's first "factory farm" for cows has stirred up the debate on the future of farming in Europe. Similar "feedlot" dairies are commonplace in the U.S., but plans for a complex housing up to 8,100 cows in England is the first proposal on such a large scale in Western Europe. It is still far from clear whether they will be accepted on a continent increasingly obsessed with where its food comes from. There's a certain irony in the timing: Nocton Dairies has submitted its application to open the huge industrial dairy just as the anti-industrial farming movie "Food Inc." opens in cinemas across the UK. The plans have sparked fierce protests from an unlikely alliance of campaigners that includes dairy farmers and animal rights activists, with everything from concern about damage to local archaeology, pollution and animal welfare being put forward as objections.

4. The Japan disease - Former Morgan Stanley Chief Economist Andy Xie has written a thoughtful piece looking at the problems inside Japan's economy as its population ages. He suggests it is a problem that will afflict those developed economies with growing debts and low migration. Europe in particular has a problem. HT Blair Rogers via Twitter.

If you travel across Japan and the United States, you get the impression that America is in much worse shape: Americans cannot stop screaming about their woes, while the Japanese face economic sufferings quietly. Maybe this is due to cultural differences. Regardless, Japan is in dire shape. Its nominal GDP is now lower than it was in 1992 when the nation's property prices first began to decline. Japan's status is frightening because its problems will spread to all of us in the future. Everyone knows what it's like to grow old. And history is full of examples of empires that grow old, wither and die. For modern economies, though, this is a new concept. There are clearly factors behind the aging of an economy. All of these factors are now at work in Japan. And looking at Japan today, it's clear that it's no fun for an economy to grow old.

Asset values take a beating when the elderly have to sell assets to live off in their retirement.

Aging has disastrous consequences for asset prices. Property, for example, must be a permanent bear market. Declining population means declining demand for property. As property is a long-lasting asset, permanent surplus is likely, exerting a constant downward pressure on property prices. Japan's property prices have been declining at about 7 percent per annum for nearly two decades. The rental yield happens to be similar to the price decline. Foreigners are enticed by Japan's high rental yield from time to time. Few have made money. An aged economy is a stagnant economy. Hence, corporate profits are likely to be stagnant. Without growth, stocks should be very cheap, say, around 10 times earnings and 5 percent dividend yields. Japan's stocks were trading at above 70 times earnings at their peak. They have been falling for two decades.

5. A book to read - Felix Salmon has written a glowing review of Michael (Liar's Poker) Lewis' book 'The Big Short'. This looks like a book to buy. I'll point it out to my wife as a Christmas Present. And my Birthday's coming up... Hey honey...seen this...

The result is that rarest of beasts in a world drowning in financial-crisis books: a new book which actually breaks news. For instance, Lewis uncovers what could possibly be the single greatest trade that any Wall Street banker ever made: in December 2006 and January 2007, Deutsche's Greg Lippmann paid an insurance premium of 0.28 percentage points to take out insurance on $4 billion of triple-A-rated bonds from Morgan Stanley's Howie Hubler. Less than a year later, that $11 million bet paid off to the tune of a whopping $3.7 billion. I'll save you the math: that's an annual return of more than 33,000%. There's lots more where that came from: this is an assiduously-reported and beautifully-written book. There aren't many reasons to be happy about the global financial crisis, but here's one: that it brought Michael Lewis back to his roots, to produce what is probably the single best piece of financial journalism ever written.

Here's an interview with Lewis on The Daily Show

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
Michael Lewis
www.thedailyshow.com
Daily Show Full Episodes Political Humor Health Care Reform

6. Grumpy Greeks - Public sector unions and the public aren't taking Greece's budget slashing lying down, the theGlobeandMail reports. HT Andrew via email

The cutbacks have angered unions, which responded with strikes and demonstrations that were marred by extensive riots. Opinion polls show the public is increasingly unwilling to brook the measures. While one in two Greeks agreed that the austerity package was “generally in the right direction” to help government finances, 42 per cent disagreed, according to a survey published in Sunday's Ethnos newspaper. Nearly 66 per cent said the cutbacks were unfair. A poll in the Sunday Eleftherotypia newspaper found that 51 per cent of respondents were prepared to participate in labour action against retirement age increases and cuts in wages and pensions. State power corporation workers will be on strike Tuesday and Wednesday, while petrol station owners, state hospital nurses and teachers are also planning walkouts this week.

7. The holy trinity of fat, sugar and salt - David A. Kessler has written a must-read in The Guardian (to go with his book 'The End of Overeating') about how the food industry have worked out that pumping food full of sugar, fat and salt encourages 'hypereating'. The industry calls it the 'three points of the compass'. Kessler is a former commissioner of the US Food and Drug Administration. Easy for me to say now, but I reckon one way to discourage this is to tax 'bads' such as sugar, salt and fat. Read this and then decide. I wonder if in years to come we will see class action law suits against these food technology companies on the grounds they knew what this 'layering' of the 'three points of the compass' would do to public health. I wonder if Fonterra have thought of this. HT Andrew via email.

"Higher sugar, fat and salt make you want to eat more." I had read this in scientific literature, and heard it in conversations with neuroscientists and psychologists. But here was a leading food designer, a Henry Ford of mass-produced food, revealing how his industry operates. To protect his business, he did not want to be identified, but he was remarkably candid, explaining how the food industry creates dishes to hit what he called the "three points of the compass". Sugar, fat and salt make a food compelling. They stimulate neurons, cells that trigger the brain's reward system and release dopamine, a chemical that motivates our behaviour and makes us want to eat more. Many of us have what's called a "bliss point", at which we get the greatest pleasure from sugar, fat or salt. Combined in the right way, they make a product indulgent, high in "hedonic value". During the past two decades, there has been an explosion in our ability to access and afford what scientists call highly "palatable" foods. By palatability, they don't just mean it tastes good: they are referring primarily to its capacity to stimulate the appetite. Restaurants sit at the epicentre of this explosion, along with an ever-expanding range of dishes that hit these three compass points. Sugar, fat and salt are either loaded into a core ingredient (such as meat, vegetables, potato or bread), layered on top of it, or both. Deep-fried tortilla chips are an example of loading – the fat is contained in the chip itself. When it is smothered in cheese, sour cream and sauce, that's layering.

8. Finally - Simon Johnson at Baseline Scenario (a former chief economist at the IMF and one of my favourites) has pointed to a hard-hitting speech by a Democratic Senator (Ted Kaufman of Delaware) about the need for financial reform as a sign that America's political classses may finally be getting the message.

Last week, Senator Ted Kaufman (D., DE) gave a devastating speech in the Senate on “too big to fail” and all it entails. A long public silence from our political class was broken – and to great effect. The Senator has gone one better, putting many private criticisms of the financial sector – the kind you hear whispered with conviction on the Upper East Side and in Midtown – firmly and articulately on the public record in a Senate floor speech He goes after Lehman – with its infamous Repo 105 – as well as the other entities potentially implicated in those transactions, including Ernst and Young (Lehman’s auditors). This is the low hanging fruit – but have you heard even a squeak from the White House or anyone else in the country’s putative leadership on this issue? And then he goes for the twin jugulars of Wall Street as it still stands: The idea that we saved something, at great expense in 2008-09, that was actually worth saving; and Goldman Sachs.

Here's a snippet from the speech.

Mr. President, it is high time that we return the rule of law to Wall Street, which has been seriously eroded by the deregulatory mindset that captured our regulatory agencies over the past 30 years, a process I described at length in my speech on the floor last Thursday. We became enamored of the view that self-regulation was adequate, that “rational” self-interest would motivate counterparties to undertake stronger and better forms of due diligence than any regulator could perform, and that market fundamentalism would lead to the best outcomes for the most people. Transparency and vigorous oversight by outside accountants were supposed to keep our financial system credible and sound. The allure of deregulation, instead, led to the biggest financial crisis since 1929. And now we’re learning, not surprisingly, that fraud and lawlessness were key ingredients in the collapse as well. Since the fall of 2008, Congress, the Federal Reserve and the American taxpayer have had to step into the breach – at a direct cost of more than $2.5 trillion – because, as so many experts have said: "We had to save the system." But what exactly did we save? First, a system of overwhelming and concentrated financial power that has become dangerous. It caused the crisis of 2008-2009 and threatens to cause another major crisis if we do not enact fundamental reforms. Only six U.S. banks control assets equal to 63 percent of the nation’s gross domestic product, while oversight is splintered among various regulators who are often overmatched in assessing weaknesses at these firms. Second, a system in which the rule of law has broken yet again. Big banks can get away with extraordinarily bad behavior – conduct that would not be tolerated in the rest of society, such as the blatant gimmicks used by Lehman, despite the massive cost to the rest of us.

9. Decades of deleveraging - FTAlphaville has picked up a commentary by Societe Generale strategist Albert Edwards about the likely size and timespan for de-leveraging. It is big and long. It has already started in earnest with a plunge in lending by US banks. Here's some charts and Edwards' comments.

US total credit continued to disappear down the plughole, despite the government’s best efforts to inflate us back to prosperity [see chart above]. The current recovery, based in very large part on the end of de-stocking, simply cannot be sustained while credit is disappearing at this debilitating dehydrating rate.

With nominal GDP actually managing to inch up some 0.8% in the year to Q4 2009, the economy managed its first baby step along the long and winding road to normality, with US debt dipping under 350% of GDP. Household leverage has returned to 94% from its peak of 96% in both 2007 and 2008. But consider this: at the peak of the Nasdaq bubble, household leverage was just shy of 70%. There is a very, very long way to go.

In the case of the non-financial debt/GDP ratio, it remained at a record 240% high at end-2009. We need to “lose” some 60% of GDP worth of debt to get back to where we were at the peak of the Nasdaq bubble (I use this reference point for no other reason than these levels seem obscenely high relative to history at that time). Either way, investors should accept we have a long hard slog ahead.

FTAlphaville's Neil Hume concludes:

It could take a decade of Japan-like pain.

Here's the doozy mother of all charts to drive the point home on how much debt has to be unwound relative to history.

Totally irrelevant link - An Italian mafioso who calls himself 'Scarface' was tracked down by Police via his facebook messages...., the Telegraph reports. 'I have an offer you cannot refuse: update your status'

Pasquale Manfredi, 33, who called himself "Scarface" in tribute to the gangster film starring Al Pacino, is wanted for killing a rival mobster by blowing him up with a rocket launcher. Police said he was a keen user of Facebook, updating his profile regularly. He used an internet key to log onto the internet, a device which enabled police to pinpoint his location in the town of Isola Capo Rizzuto in the southern region of Calabria. He was reportedly chatting on Facebook when his flat was raided by armed officers in the early hours of Tuesday.

Totally irrelevant video - The Chatroulette shuffle.