Top 10 at 10: Gold collapse inevitable?; Not so high interest; Japanese default warning; Dilbert

Here are my Top 10 links from around the Internet at 10 past 11. I welcome your additions and comments below or please send suggestions for Tuesday's Top 10 at 10 via email to bernard.hickey@interest.co.nz

1. 'Gold will collapse...eventually' - The Pragmatic Capitalist at Seeking Alpha has written in detail about the 'irrationality of the gold bubble', saying gold prices may yet surge higher, but ultimately deflation and the solidity of the US dollar will lead to a collapse in the gold price. Your view? I tend to agree on the deflation aspect. We are entering a multi-year period of debt-de-leveraging driven deflation, similar to what happened in Japan.

I believe there is a fairly high chance of an eventual defection and default in Europe. After all, there is no good solution in the region and the debt problems will persist until something forces the EMU’s hand. If this in fact occurs, gold prices could very well reach stratospheric levels. But ultimately, paper money will survive in its current form no matter what happens to the Euro.

Cooler heads will prevail and investors will realize that the Euro crisis is unique to that currency system and not a reflection of the floating exchange system as a whole.

As this occurs, gold investors will realize that the risk of inflation never materialized and that the Euro was not in fact a flaw in paper currency, but a flaw in single currency systems. Should this occur I believe we will see a spectacular collapse in gold prices not unlike the move in the 70’s.

In the near-term, however, dollars, bonds and gold are likely to remain the safe haven trades of choice as deflation remains a near-term risk and investors continue to misinterpret the Euro crisis as a fiat money crisis. Ultimately, one of the above will end in heartbreak for millions of investors and I for one am not betting against the solvency of the USA.

2. Japanese default? - The new Japanese Prime Minister, Naoto Kan, has started with a bang, warning Japan risks defaulting on its massive public debt unless it put up its GST, Reuters reports.

Kan, who took over the nation's top job after his unpopular predecessor quit abruptly last week, has made tackling a public debt that is already twice the size of Japan's GDP a top priority amid market concerns about sovereign debt risk.

"We cannot sustain public finance that overly relies on issuing bonds," Kan told parliament in his first policy speech. "As we can see in the euro zone confusion that started from Greece, there is a risk of default if the growing public debt is neglected and if trust is lost in the bond market."

3. 'Not so high interest' - If you think the big four banks are unpopular here, you only need to look over the Tasman to see who is public enemy number one at the moment. The Sydney Morning Herald is leading this morning with research from brandmanagementCoreData (commissioned by Rabobank) showing that Australians stand to lose out on A$4.7 billion worth of earnings because people have money in low interest bearing transaction and other bank accounts. 

The research found 59 per cent did not know what interest rate they were earning on their savings accounts. This is benefiting the banks by about $4.7 billion in unpaid potential extra interest to customers, according to brandmanagementCoreData. Commonwealth Bank, which has the nation's biggest deposit base, last year revealed it had about $70 billion in low-interest accounts.

This gives the bank a substantial benefit when funding costs are rising. Customer confusion is reinforced by the labelling of some accounts offered by the banks, many of which include the word ''savings'' but offer interest rates well below the 4.64 per cent average interest rate being paid on high-interest savings accounts, or the 6.1 per cent offered in special rates.

4. 'Do you want fries with that' - A joint Trans-Tasman survey of bank staff in Australia and New Zealand by Finsec and the Finance Sector Union has found 25% in the survey were concerned about 'pushing' products onto customers who couldn't afford it. Various newspapers covered the survey, including the Herald on Sunday, which quoted from an unnamed bank worker

Sales staff at banks are using scare tactics to pressure low income families into buying products they can't afford, a whistleblower said last night. It came as a survey showed 25 per cent of staff feel uncomfortable about encouraging customers to take on overdrafts and credit cards.

The bank worker - who spoke on condition of anonymity - said staff discussed sales strategies for individual customers after retrieving their income details from bank records. When selling life insurance, they commonly raised fears about "what would happen to your children's future" to force a sale.

The employee, who works at a major high street bank, said the constant pushing of products on to customers was similar to the McDonald's philosophy of asking: "Do you want fries with that?"

"The philosophy is around selling something to everybody. It's a fine line. You feel like you are throwing them a lifeline when in actual fact it's an anchor." The bank he works for set up a stand on a university campus to tout for business using young, blond, female bank staff.

"I felt it looked a little bit weird because they were all a certain type. It almost looked like a cheerleading squad."

5. Talk about a leak - China is investigating reports that key economic data on exports, consumer prices and new loans was leaked by an official at a conference before its official release, sparking a rally on global markets, Bloomberg reports. Yikes. Talk about an insider trading opportunity. What was the official thinking? This was certainly a major factor in the New Zealand dollar's rise in the last week.

Reuters on June 9 reported figures for exports, consumer prices and new loans, citing three people who heard them from a government official at an investor conference. Official releases in the following two days matched or were close to the numbers. The reported data, which exceeded forecasts, spurred the biggest gain in the benchmark Chinese share index in two weeks and set off a stock rally from Europe to the U.S., highlighting China’s role as the fastest-growing major economy.

Selective disclosure risks feeding speculation and undermining investor confidence, said Peng Wensheng at Barclays Capital. “It’s not good for the market and not good for the government’s credibility,” said Peng, head of China research at Barclays Capital in Hong Kong and former chief of China affairs at the Hong Kong Monetary Authority. “It’s definitely not good for any data to come out before they are released.”

6. Finally we have a number - The Bank for International Settlements, which is the central bankers' bank, has estimated European banks have lent the governments of Greece, Ireland, Portugal and Spain a combined US$254 billion, Bloomberg reports. And that's just to their governments. European banks have US$1.58 trillion of exposure to banks and other corporates in the PIGS. That's more than enough to cause carnage if the default in one of the PIGS turns into a Euro meltdown. No wonder so many are worried about Europe.

“Government debt accounted for a smaller part of euro area banks’ exposures to the countries facing market pressures than claims on the private sector,” the BIS said in the report. “French and German banks were particularly exposed to the residents of Greece, Ireland, Portugal and Spain.”

The Bloomberg European Banks and Financial Services Index of 52 lenders has dropped 10 percent in the past month on concern the government bonds held by the lenders will plunge in value, sparking further writedowns. A $1 trillion loan package from European policy makers last month failed to erase concern that Greece’s debt crisis will spread.

7. Irish pain goes on - They lost horribly in the rugby and now the mess inside their banking system is being laid bare, The Irish Times reports. HT Brendan Waugh via email.

Government macroeconomic and budgetary policies, poor regulation and lax bank lending standards contributed to an overheating of the economy and the banking crisis, according to two reports into the Irish banking crisis.

One of the reports, written by Central Bank governor Patrick Honohan, made severe criticisms of govenment policies, during the years leading up to the banks guarantee in September 2008, which he said contributed significantly to the economy overheating.

8. Double dip - US retail sales fell unexpectedly by 1.2% in May, adding to concerns about a double dip in America, the WSJ reports.

The pullback comes at a delicate time for the recovery. A full year of economic growth has allowed companies to build up record-high cash reserves.

But firms want to see more sustained demand before they put that money into the kind of capital investment and hiring that would ensure a self-sustaining recovery.

Meanwhile, federal stimulus funds that many economists believe have helped fuel the recovery will peter out this year.

9. More US debt - Barack Obama has quietly asked the US Congress for a spare US$50 billion to help pay state employee salaries in many of the states which are bankrupt and can't fund their deficits with borrowing, unlike the Federal government, Bruce Krasting at Zerohedge reports. HT Gertraud via email. These November mid-term elections are shaping up to be very interesting. Encumbents are already being wiped out by angry voters in early votes. Obama may not control both houses of Congress after November.

The pundits (and political leaders) out there who are selling the story that we are in a sustainable V shaped recovery are wrong. The economy struggles to create 40,000 jobs a month. But budget cuts are about to lay off 300,000 high paid workers.

The President’s proposal will pass the buck forward a few months on these layoffs. But by January they will be back on the table. We are less than six months away from another significant slowdown. The President no longer has the money to avoid that reality.

10. Totally irrelevant video - There's been a major spill at BP. The team are working on it. Just hilarious for anyone who has worked in an office at a large corporate.