Here are my Top 10 links from around the Internet at 10 past 12pm. I welcome your additions and comments below or please send suggestions for Wednesday's Top 10 at 10 via email to bernard.hickey@interest.co.nz
1. Gareth kicks off - Gareth Morgan has again slammed the recent budget changes in his NZHerald column, but this time has tee-ed off at the relationship between the government and the big financial institutions that run pension funds. He is saying the unintended consequence of the various tax changes is to try to push Mums and Dads into pension funds they don't want, therefore simply reinforcing their pro-property bias. Gareth has a history of criticising fund managers and the government, but this is a particularly heavy attack. HT Les Rudd.
At least direct ownership of property keeps their tax affairs simple, enables them to keep management control of their savings, and if they form a company to do it, enables them to exploit the lowest tax rate.
If you combine that with the Reserve Bank's ongoing preference for banks to lend on mortgage and the fact that capital gains aren't taxed at all, it's a no-brainer. The increasing vulnerability of government policy to lobbying and threats from multinational financial institutions and their footsoldiers within corporate legal and accounting firms is steadily reducing the real choices people have to save and invest their money where they choose.
That is bad for our economic future, reduces the economy's ability to withstand shocks, sponsors an ongoing misallocation of capital, and will make even more retirees dependent solely on the state pension.
It is hard to believe that a Government that declared it wanted to promote investment literacy and address inequities in the tax regime could be such a slave to the interests of the big end of town.
2. Euro slap-down - The Euro meltdown just won't go away. It just gets uglier. Now Der Spiegel is reporting in German that the constitutional court there could reject the US$1 trillion rescue plan. Here's The Business Insider with the slightly dodgy Google translation into English, but you get the general gist.
3. Budget cut weekend - The long weekend just passed was all about fiscal stringency in Europe. Governments across the continent are trying to rein in their deficits after the near death experience of the last month or so. Germany announced the most radical cutbacks since World War II, according to Der Spiegel, which also has an excellent graphic below on debt in Europe. All this means Europe will struggle to grow for a very long time and a global double dip is more likely.
"We have to save €80 billion by 2014 to put our financial future back on a solid footing," Merkel told a press conference on Monday afternoon. She said the budget cuts for Germany, Europe's largest economy, were a "unique show of strength" that signalled her government's commitment to tackling the European debt problems that have plunged the euro single currency into crisis.
"Germany as the largest economy has a duty to set a good example," she said. A number of European nations have fashioned similar austerity programs, with Spain passing sharp cuts last week and Greece having pushed through far-reaching emergency savings measures earlier this year in a last ditch attempt to avoid bankruptcy.
4.The tough road ahead - Satyajit Das, the author of Traders, Guns and Money, gave an excellent interview to Radio Live's Andrew Patterson on his Sunday Business show. It's well worth a listen. Das essentially says there is too much debt in the developed world and we face years of slow growth, at best. He says the Global Financial Crisis is now morphing into the Global Sovereign Debt crisis where governments are forced Greek style to cut living standards. Here's a taste.
The problem is that governments themselves are having problems. There are no more balance sheets left that we can leverage. The sad thing is people have consistently refused to acknowledge the real problem that we have too much debt, and secondly, that debt and was not used for productive purposes. It didn't create factories or things that can be used for streams of income. It was used for consumption.
The problem is the value supporting that debt has fallen and secondly the income to meet those debts in the future has diminished sharply so it's actually pointing to some deep lying stresses in the system which still are not being dealt with. People were singing the Martha and the Vandellas song 'Dancing in the Streets.' Now they have to sing a different song: 'Nowhere to run, Nowhere to hide'
5. China's property bubble - This interactive graphic and video from WSJ on the Chinese property bubble is very useful. The article that goes with it points out the housing market there is now in a virtual state of paralysis. This is a crucial factor to watch. If the bursting of a property bubble in China hurts its growth prospects that will affect New Zealand because we are a suburb of Australia and Australia is a province of China. HT Hugh Pavletich via email.
Government policy changes have thrown China's booming property market into a period of paralysis that some industry executives say will last for several months, weighing on global growth prospects already battered by the turmoil in Europe.
A rebound in China's property market has been central to the nation's rapid recovery from the financial crisis, but surging housing prices had led to increasingly open discontent from middle-class families in major cities. After months of indecision, Beijing in mid-April announced a package of policies intended to blow the froth out of the market by restricting speculative purchases.
Officials may have gotten more than they bargained for. Though still too recent for their effect to show up in official economic statistics, early indications are that the new measures have sharply cooled the property market. Arriving around the same time as the debt crisis in Greece, China's new restrictions caused many investors and businesses to question the strength of the global recovery.
Domestic steel prices are down 7.4% since the April measures, and as of Thursday China's main stock market index is down 19.4%.
6. 200 years that changed the world - This interactive chart on Gapminder is fun to play with. It charts life expectancy over 200 years in a variety of nations and tracks it against per capita income. It seems to show NZ is doing ok. Have a play and tell us what you think. HT Gertraud via email.
7. 'Hey, look at Australia's house prices' - It seems international hedge fund managers have worked out that Australia's housing market is over-valued and have decided to short the big four Australian banks, betting that any bust will hurt them. This is a worry because any slump in the share prices of the big four will cause ripples on both sides of the Tasman. Scott Murdoch of The Australian has the story.
The top four banks have suffered a sustained selldown since April, as the US funds slash their exposure to the local financial services sector. Westpac has experienced the most savage declines, with its share price down 19.4 per cent since early April, ahead of NAB's 15.5 per cent decline, CBA's 13.97 per cent fall and ANZ's 12.82 per cent depreciation.
A New York hedge fund manager, who did not want to be named, said sentiment towards the Australian banks had soured because of doubts that the strength in the national property market would be sustained.
"There's a lot of scepticism in the US regarding the Australian property market," the hedge fund manager said. "A lot of people have doubts about whether the strength of the market is going to be maintained.
"I think it's the case funds are shorting the banks. If you're of the view that property is going to come off, then shorting the stocks is a very clean way to express that view. It's an attractive trade."
8. What the Aussie investment banks are saying - JP Morgan has put out this paper saying that 'structural issues' justify house prices in Australia and could actually back a further 12% rise in prices in 2010. JP Morgan reckons there is a shortage of supply... Your view? My view is it's worth wondering if they're talking their book and are quietly going short on their proprietary trading desk. It's been done before...
The undersupply of housing is not an issue that can be resolved quickly, especially given the apparent lack of political will demonstrated thus far. Therefore, given the underlying price support such a situation provides, the interplay of the cyclical factors listed above will occur across a narrower spectrum of possible price outcomes than would otherwise be the case.
Our forecast of an essentially stable unemployment rate, combined with solid immigration flows and price momentum, should outweigh the drags of higher interest rates and lower loan volumes, to produce capital city house price growth of around 12% in 2010.
There will, however, be a mix of outcomes by region and price group. Already there are reports of mortgage stress in regions where utilization of the expanded FHB grant was particularly intense; we expect this to result in some patches of weakness.
Average/median prices, however, will be well supported, with a gradual slowing in momentum occurring over this year (prices rose 20% in the year to March). Home loan demand will continue to be sluggish, with FHB representation continuing to fall, but this likely overstates the moderation in house price growth to come.
9. What's really happening in America - This guy George from inflation.us has a video camera and has visited one of the 'dead' suburbs in California where the whole suburb has never been occupied. He points out that purchase applications are down 40% and he reckons house prices will fall 70-80% overall. The irony here is that he's promoting a site that is worried about inflation but he's pointing out massive deflation in asset prices... HT Gertraud via email
10 Totally relevant video - This video is from May 26 but is still well worth a listen. Newsnight's Jeremy Paxman is always good value and he has a good bunch of talking heads, including the always excellent hedge fund manager Hugh Hendry, who recommends we panic. HT Anthony Field via email. You'll have to click through because it won't allow embeds.
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