Top 10 at 10: Bruce blames women for the housing boom; The big Chinese float; Dilberts

 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 Tuesday's Top 10 at 10 via email to bernard.hickey@interest.co.nz

1. Blame the women - Shareholder activist and renowned curmudgeon Bruce Sheppard has a novel take in his Stuff blog on why we invest too much in housing. Men want big houses to impress women, he says. Yikes. He also suggests Mark Hotchin may have a poor self image. Touch paper lit. Standing back...

Housing has become a competition, let us see who can have the biggest house, cause if you have the biggest house you are the biggest man. Interestingly Hotchin is short. Why do we think like that? Here is a quick straw pole for you to run in your work place, ask the women, “when choosing a man, what do you pick big heart, big house or big …?” Well in most groups when I run this politically incorrect survey the house wins by a country mile.

So it is the woman’s fault, they want the man that can provide the best for them and his kids. Now don’t be surprised by this, as the role of woman since time began is to replace themselves, and in doing so they want to pick a mate that can produce more mammoths and a safer bigger cave because then the chances of the kids surviving well is enhanced. It is again the powerful force of survival of the fittest, human nature at its essence.

Houses have got bigger, with more adornments, they have become less practical, and way more expensive, and this is mostly driven by our soft emotions around housing, mostly driven by the mating ritual and women. So despite all the crap nothing has changed since time began.

Here is a thought to humiliate the big house owners, the bigger the house the bigger the personal insecurities. Bugger my house is quite big I should stop now! But at least I can say that Hotchin is the most insecure individual in all of NZ judging by his house size. Poor sad sod. Let’s send him a sympathy card.

2. Yuan float - Finally, it seems the Chinese are going to move. The Peoples Bank of China announced late on Friday it planned to free up the yuan/renminbi from its current peg of 6.83 to the US$. This is major news in the financial world and potentially great news for New Zealand exporters. Here's how the People's Bank announced it:

In view of the recent economic situation and financial market developments at home and abroad, and the balance of payments (BOP) situation in China, the People´s Bank of China has decided to proceed further with reform of the RMB exchange rate regime and to enhance the RMB exchange rate flexibility.

China´s external trade is steadily becoming more balanced. The ratio of current account surplus to GDP, after a notable reduction in 2009, has been declining since the beginning of 2010. With the BOP account moving closer to equilibrium, the basis for large-scale appreciation of the RMB exchange rate does not exist.

3. Giant headfake - Yves Smith at Naked Capitalism has a different view on the People's Bank announcement, describing it as a giant headfake.

There are some real internal inconsistencies. While this does represent an announcement of an intent to liberalize, it lacks any particulars as to timing and mechanisms. Moreover, it specifically rejects the idea of widening the bands in which the RMB trades, which is the litmus test of a move to a market-based exchange rate (you’d expect gradual widening of the permitted band as a precursor to abandoning currency intervention).

Instead, what this appears to signal is a shift of the basis for managing the currency to: 1. Use of a basket of reference currencies, rather than just the dollar. China is contending that that is what it has been doing since 2005, but the language allows for the possibility for a change in the mix. Thus this signals China’s intent to move away from a dollar reserve currency regime (it has taken other measures along these lines, for instance, encouraging invoicing in currencies other than the dollar). The problem is that a permitted trading band vs. a basket of currencies is what China supposedly implemented in 2007, and the results have looked an awful lot like a dirty float against the dollar.

2. Arguing for the balance of payments as the metric of the appropriateness of the exchange rates. China contends that because its balance of payments is improving (as in its trade surplus is weakening) it really does not need to do much (as in it has ruled out a meaningful revaluation). This is essentially an argument that the large trade deficit for March means critics need to lay off, a posture it took in April. The problem, however, was the March deficit appears to have been the result of one-off factors. China’s exports in May were larger than expected, due to more robust export growth. 

4. Next up -- The Germans - Arvind Subramanian at Baseline Scenario makes some interesting points about what the Chinese float decision means for the global economy. He reckons the Germans will be the next to be pressured to reduce their trade surplus. But instead of pressure to revalue, given the Euro's weakness of late, Germany will be pressured to spend up and import more.

With China having made its contribution to global re-balancing, it is time to demand the same of Germany, which is the other large surplus country in the world economy, and which has just received a steroidal boost of competitiveness with the decline of the euro. Where China was an intentional mercantilist, Germany has become an accidental mercantilist, which will further increase its current account surplus.

But Germany has responded by announcing fiscal consolidation. Some have excused this action on the grounds that the tightening involved would be small and back-loaded. But this misses the key point: Germany’s action has the wrong sign: it should be expanding demand, not just for the sake of global re-balancing but to provide some growth impetus to its dire Southern European neighbors.

But in fact it is now reducing demand. If this continues, the spotlight will have to be on Germany. China-bashing is now likely to cede to Germany-bashing.

5. Buying the News (week) - China's Southern Daily Group tried (and failed) to buy Newsweek, it has emerged in ChinaDaily's English language version. HT Gertraud via email. How long before we see Chinese interests bidding for a newspaper group in New Zealand?

Founder Xiang Xi said the money is not what is keeping the Chinese bidder outside of the door. "They don't really understand Chinese media people," he said. "They are not sure of why we are bidding. But I understand it is easier for a US media to take over the operation."

The tagline of Southern Weekly - described by the New York Times as "China's most influential liberal newspaper" - is "to understand China".

Xiang said the move is for the world to have a better understanding of China, and for China to know more of the world. The attempt to buy Newsweek is a beginning, said the 38-year-old, adding that they are "seeking to round up investors to bid on other media abroad."

6. Useful summary - JB at mortgage broker Squirrel has a useful outlook on New Zealand house prices, which concludes with a forecast for a 10-15% fall. Glad to see I'm not the only one. HT David via email.

We will see a soft property market for some time with an overall downward trend in property prices for the next 2-3 years. We will likely see prices down 10%-15% from their peak. Within the overall picture however there will be over and under performers. I’d stay well away from low yielding rental properties unless they are in high growth suburbs and even then I’d be cautious.

My opinion is that blue collar suburbs will see the biggest price falls due to tight credit criteria, employment risk, and a high concentration of property investors. If you are buying cash flow positive properties then who cares about prices!

 7. Forward defensive - Felix Salmon at Reuters points out the similarities between BP's Tony Hayward, who stonewalled Congress last week, and the painfully defensive English opener Geoff Boycott. They even look the same.

Here, then, are two masters of the dead bat. One of them epitomizes England across the Caribbean and the world; the other one is Geoffrey Boycott. I wonder whether Hayward was a cricket fan as a lad.

 8.  Cassandras speak (and gloat a little) - Nouriel Roubini and Nassim Taleb talk here at PBS about fat tails, black swans and the financial crisis. Well worth a watch. Be prepared to be shaken by their forecasts about American debt.

As part of his ongoing series of reports making sense of economic news, Paul Solman checks back in with two economists who remain pessimistic about the chances of an economic recovery to discuss recent market volatility and the possibility of a double dip recession.

9. One scary chart - Steve Keen is a bit of a hero of mine. He's the Australian economist who predicted a house price crash in Australia. When he lost a recent bet he walked from Canberra to Mt Kosciuscko to publicise the craziness of Australian house prices. Now the Australians are really focused on it. Here's his latest view and a fascinatingly scary chart showing inflation adjusted house prices in America, Japan and Australia. He makes the point that bubbles are always 'different' right before they burst.

Before Japan’s bubble burst in 1990, we heard that Japan was different: the “Rising Sun” was eclipsing the USA and house prices reflected this growing wealth (and—didn’t you know? —there was a land shortage in Tokyo!). Before the USA’s bubble burst, there were land shortages in all the States with price bubbles—especially California.

Those other bubbles duly burst, despite their “unique” characteristics, under the weight of the same force: too much debt was taken on by speculators seduced by the groupthink that house prices always rise. When the rise in house prices made the entry costs for new players prohibitive, debt stopped growing and house prices collapsed.

This is the other thing that all housing bubbles (and share price bubbles, for that matter) have in common: they are all driven by borrowed money, and they can only be sustained so long as rate of growth of debt outpaces incomes. Once that stops, the engine of unearned income that enticed speculators in breaks down—since the only way that we can all appear rich without working is if we spend borrowed money.

Of course, we all know that spending borrowed money is a surefire route to ultimate poverty. The great tragedy of an asset bubble however, is that it’s someone else’s increase in debt that makes us appear wealthier when your house sells for more than you paid for it. In effect, the housing market “launders” the debt money, making it appear real.

10. Totally irrelevant story - This is a lead I wish I had written. I hope the puppy is OK. 

A German student created a major traffic jam in Bavaria when he 'mooned' a group of Hell's Angels, hurled a puppy at them and then escaped on a bulldozer. The 26-year-old drove into the grounds of the motorcycle gang members' clubhouse north of Munich, according to reports in local media.

The young man, who was not identified, then dropped his pants, threw the puppy, and then fled. After making his getaway, he stole the bulldozer from a nearby construction site, and attempted to drive it to Munich.

10. Totally irrelevant video - Stephen Colbert boils down the oil spill speech from President Obama to its key elements. One fish. Two fish. Red fish. Dead Fish.