Wednesday's Top 10 with NZ Mint: A death tax for boomers?; Probe of Hubbard's right hand man; Peak phosphate?; Toilet paper vs cash; Dilbert

Here are my Top 10 links from around the Internet at 10 to 1 pm, brought to you in association with New Zealand Mint for your reading pleasure.

I welcome your additions and comments below, or please send suggestions for Thursday's Top 10 at 10 via email to bernard.hickey@interest.co.nz. I'll pop any surplus suggestions I get into the comment stream under the Top 10.  

1. Tax the boomers' inheritances - Michael Kinsley writes a long mea culpa at The Atlantic on behalf of Baby Boomers who are about to hand on a mountain of debt to their kids.

He essentially says the generation that blew it all should now redeem themselves by paying more taxes to lessen the debt for the next generation. Kinsley suggests a broad, low rate tax on the Baby Boomer generation.

How could we do that here? Perhaps a land tax? No. John Key has ruled that out. How about a capital gains tax? No that's out as well.

What about extending the retirement age to 70? John Key says no to that too. Oh well. No worries then. Growth will fix the problem...

Maybe a proper estate duty. We don't have one at the moment. Your view? HT FTAlphaville and Kevin via IM.

Here's Kinsley. He suggests a estate/death tax.

We should pass on to the next generation an America that’s free from debt. Instead of ignoring it, or arguing endlessly about whose fault it is and who should pay for it, Boomers as an age cohort should just grab the check and say, “This one’s on us.” To the post-Boomer generation, now approaching middle age: we’re going to make sure the currency doesn’t collapse, or the George Washington Bridge, either, for lack of maintenance.

We’re going to reduce the national debt down to a reasonable level. We’re going to invest in research, catch up with all the deferred maintenance on our physical infrastructure, fix public education. You will not have to be embarrassed by the squalor that greets foreign visitors at our nation’s airport.

A widely noted 1999 study estimated that at least US$41 trillion will have been transferred from parents to children and grandchildren between 1998 and 2052. Most of the transfers in the last half of that time period will be Boomers passing money along to the next generation. But in the first half, money will mostly be coming from the previous generation to the Boomers themselves. Boomers could forswear all or part of this unearned inheritance.

Or, more realistically, they could allow the government to tax it. At the moment, there is no federal estate tax.The idea of my tax is to produce a lot of money that can then be used to pay off, or at least buy down, society’s debts. If we could collect just 20 percent of the alleged US$41 trillion about to pass through two generations, that would be more than US$8 trillion (to help repay a national debt of US$14 trillion)

2. Hubbard's former partner being probed - The Charities Commission has confirmed it is investigating a number of charities with connections to RSM Law partner Ed Oral Sullivan, including Timaru's branch of St John's Ambulance. 

Ed Oral Sullivan, pictured left, is a former director in South Canterbury Finance and was widely seen as one of Allan Hubbard's right hand men.

The Timaru Herald reports Timaru St Johns seems to have lost a lot of money it had invested in contributory mortgage schemes via RSM Law.

Charities Register documents show Ed Sullivan has been a member of the Timaru St Johns Ambulance Financial Control board since 1970.

The Timaru Herald spoke to Sullivan about any conflict of interest:

When asked what involvement he had in financial decisions and whether he offered St John any advice on how to invest the money, he replied: "As a board member, I participated with other trustees in the allocation of funds to various authorised investments. At all times my involvement with RSM was disclosed to and known by St Johns."

St John Timaru's financial statement for the year ended 2008 reveals the charity had two investments with RSM, one worth $48,172 and another of $457,000 and $114,891 with SCF. In the year ended 2007, St John's two investments with RSM totalled $36,092 and $592,000.

Jaimes Wood, national chief executive of the ambulance charity, confirmed to The Herald that its Timaru branch's latest accounts would acknowledge "the impairment writedown of the St John Timaru office investments through RSM Nominees Company", totalling more than NZ$308,000.

He said the writedown was related "to an investment in RSM Nominees Company in contributory mortgages".  

3. Paul Costello quits - The Australian reports that the fund manager who set up the New Zealand Superannuation Fund, Paul Costello, has quit his role as the head of Australia's Future Fund, which was partly modelled on the New Zealand fund.

4. Gold above US$1,300/oz? - Reuters reports a closely watched industry analyst forecasting Gold could rise over US$1,300/oz.

Gold could rally above $1,300 an ounce this year, setting successive all-time highs, as uncertainty about economic recovery and a sovereign debt crisis stoke investment interest, according to a closely watched industry report released Tuesday.

Investment demand in gold should benefit from the threat of inflation as central banks cut interest rates to the bone to battle double-dip recession and high unemployment, respected metals consultancy GFMS Ltd said in its Gold Survey 2010 Update.  

5. Peak Phosphate? - New Zealand's Farmgeek (John Hart) points to a looming shortage of phosphate globally as supplies mined in the Western Sahara runs out. He suggests nationalising our local deposits in South Otago to protect our food supplies in the long run. Your view?

NZ currently uses about a million tones of phosphate fertiliser each year. Its use underpins our entire agricultural economy so in the context of global shortages of oil and other resources, it should play a big part of our discussions.The price of rock phosphate has gone up tenfold in the last year - from $US50 a tonne to $US490 and this is making a local source of phosphate near Milton, in the South Island a viable option again.

The Milton deposit was last commercially mined during World War 2 when Japan took control of Nauru, our source of phospahte at the time. This deposit could provide us with 10 years of self-sufficiency in phosphate if it proves viable to extract it. Once world phosphate supplies start to decline, they are gone forever so surely the smart thing would be to keep ours in the ground as long as possible, giving us a 10 year window to mitigate against peak phosphate by adopting new practices. Industrial agriculture and horticulture will not exist without an abundant cheap supply of phosphates and we know a time is coming when they will be gone.

Something as vital as a 10 year reserve of phosphate should be nationalised as part of a complete food security strategy - this is simply too important to leave it to the markets to decide what to do.  

6. The counterattack goes on - Commonwealth Bank of Australia's now infamous defence of the Australian housing bubble is being assailed from all sides. CLSA's Brian Johnson has had a go.

Now David Llewellyn-Smith at Henry Thornton.com has fired a broadside. MoneyMorning also attacked it for being misleading and cherry picking statistics on price to income multiples. More in the chart below.

Here's Llewellyn Smith:

The CBA argument would still make sense if it were positioning Australian cities in a context of global demand for coastal living but it is clearly not doing so. CBA’s logic is simply that because coastal property everywhere is expensive, and Australia has largely coastal property, then Australian property is expensive. Aristotle would turn in his grave.

Steve Keen also had a go at CBA here.

7. Why Toilet paper is better than cash - Perhaps the printer of toilet paper is doing a more valuable job than the printer of money? That's the question asked by CLSA strategist Russel Napier in this WSJ Marketbeat blog post by Alex Frangos.

“Why would anybody want to have money on deposit when you can own toilet paper?,” he asked in Hong Kong at the brokerage house’s annual investor forum.

Mr. Napier thinks the bond market has peaked and bonds’ expensive prices compared to stocks signals an equity bull market is in the offing. The proof is in rolls of cushiony white paper. Napier points to toilet paper maker Kimberly-Clark Corp.

“Kimberly Clark, as you probably know, makes toilet paper. And the Federal Reserve makes dollar bills. If I take a dollar bill and change it into a deposit in a bank, if I’m lucky I get 0.5%. If I buy Kimberly Clark — it owns big printing presses that print toilet paper — it gives me a dividend yield of 4%, seven times higher,” he says.  

8. 'Fed tapdancing on a landmine' - As speculation grows again that the US Federal Reserve will start printing money in a second round of Quantitative Easing as soon as next week, John Williams from the excellent ShadowStats reckons the Fed is 'tapdancing on a landmine' and that Hyperinflation is 6-9 months away, Zerohedge points out.

He suggests Americans buy gold and Australian dollars. Here's Williams' epic Hyperinflation call from December last year for good measure. It's a big call given the depth of the deflationary pressures out there at the moment, but worth a read as a reality check. Or should that be a reality cheque?

Tap-dancing on a land mine pretty much describes what the Federal Reserve and the U.S. Government have been doing in order to prevent a systemic collapse in the last couple of years. Now, as business activity sinks anew, much expanded supportive measures will be needed to maintain short-term systemic stability. Such official actions, however, in combination with global perceptions of limited U.S. fiscal flexibility, likely will trigger massive flight from the U.S. dollar and force the Federal Reserve into heavy monetization of otherwise unwanted U.S. Treasury debt.

When that land mine explodes — probably within the next six-to-nine months, the onset of a U.S. hyperinflation will be in place, with severe economic, social and political consequences that will follow. In these circumstances, the financial markets likely will be highly unstable and volatile. Looking at the longer term, strategies aimed at preserving wealth and assets continue to make sense. For those who have their assets denominated in U.S. dollars, physical gold and silver remain primary hedges, as do stronger currencies such as the Canadian and Australian dollars and the Swiss franc. Holding assets outside the U.S. also may have some benefits.

9. Canadian covered bonds? - Reuters reports two Canadian banks are now looking at offering covered bonds into the Australian market, which is all rather curious. The Australian authorities currently ban Australian banks from issuing their own covered bonds, but it seems there might be some demand for some.

It's curious too that New Zealand's banks are looking to offer such covered bonds, which are essentially mortgage backed securities that stay on the banks balance sheet.

The big push is definitely on. Covered bonds seem a perfect way for banks to fund their lending locally rather than internationally. There'd be quite some demand from local funds and retail investors for such bonds.

French and German banks are the only institutions that have sold coverd bonds -- bonds backed by pooled assets, mostly mortgages, that remain on a bank's balance sheet -- in Australia. Australia is one of the last developed countries in the world that bans covered bonds because they rank ahead of depositors for payment in the event that a bank fails.

10. Totally irrelevant video - Here is the world's first opera in Klingon. Some people have way too much time...

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