Monday's Top 10 with NZ Mint: A neat pensions trick; 'We shoot bambi'; A 'chilling fog' of competitive devaluations; Dilberts

Here are my Top 10 links from around the Internet at 10 to 7 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 Monday'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. Gold not as high as it looks - This calculator produced by the Bank of Institutional Settlements (BIS) shows that when gold hit a peak of US$850 in 1980, this amount is actually worth US$2,248.90 in today's terms. So maybe gold hasn't risen as much as everyone thinks. It's now just under US$1,300/oz. HT Ian.

2. Here's a neat trick - US state governments are extending the retirement ages and reducing the pension entitlements of new and future employees so they can afford their future pensions obligations, the New York Times reports.

It is the ultimate in intergenerational wealth transfer, disguised in the language of actuaries.

Struggling states and cities need to save money, but they run into legal problems if they tamper with the pensions their current workers are building up year by year. So most places have opted to let current workers and retirees go unscathed. Colorado, Minnesota and South Dakota are the exceptions, dialing back cost-of-living increases for people who have already retired. All three states have reaped meaningful savings right away, and all three are being sued.

Cuts for workers not yet hired do not save much money in the present — but that’s where actuaries can work their magic. They capture the future savings for use today by assuming, in essence, that 100 percent of today’s work force is already earning tomorrow’s skimpier benefits. When used in actuarial calculations, that assumption has a powerful effect. It reduces the amount a government must put into its workers’ pension fund every year. That saves the government money. But it undermines the pension fund, which must still pay the richer benefits of today’s retirees. And because the calculations are esoteric, it is hard for anyone except a seasoned actuary to see what is going on.

3. FTAs not so good - Many people hope that a Free Trade Agreement with America will help New Zealand. The trouble is those countries with FTAs with America are actually growing their trade less than those countries without free trade agreements, HuffPo's Lori Wallach reports. They're a bad idea generally. They are an enabler for lobbyists and bullies.

The growth rate of U.S. exports to the countries with whom we do NOT have Free Trade Agreements (FTAs) has been over double that to U.S. FTA partners. That stunning finding should put an end to recent Obama administration talk about reviving three NAFTA-style FTAs leftover from the Bush era. And, it should provide impetus to finally implement President Obama's campaign commitments to renegotiate aspects of the past FTAs, and create a new American trade pact model going forward.

The core justification for FTAs like NAFTA and CAFTA is that they boost exports. Yet Public Citizen's recent study "Lies, Damn Lies and Export Statistics," analyzes the actual government trade flow data. It showed that, if exports to the 17 U.S. FTA partners had only grown as much as exports to the rest of the world, the U.S. would have had an extra $72 billion in exports over the past decade.

4. Ireland's problems worsening - The ECB bought 237 million euros worth of Irish government bonds last week in another sign of growing fear about sovereign debt in European financial markets, the FT reports.

Although the intervention is relatively small and in the millions rather than billions of euros, the fact that the ECB has had to step up its purchases highlights increasing volatility as investors fear that the eurozone debt crisis is far from over. Traders said the ECB bought Greek, Portuguese and Irish bonds last week as the extra premium these so-called peripheral eurozone markets have to pay in interest rates over Germany rose because of deteriorating sentiment.

The extra premium – or yield spread over Germany – Portugal and Ireland have had to pay in interest rates for 10-year bonds hit record levels last week. This spread widening comes as borrowing from the ECB by banks in the peripheral economies of Portugal, Spain, Ireland and Greece rises because of the refusal of investors to buy the debt of these countries and their banks.

5. It could go off on Wednesday morning - Ireland is planning to sell 1 billion euros worth of government bonds on Tuesday night. This could be a hectic week, the Irish Times points out.

THIS CANNOT go on much longer. Ever rising bond yields and a rapidly growing debt stock are like nitrates and glycerine – let them mingle and agitate together and sooner or later they explode. We are not far from that point now in the Government’s debt position. If the bond market does not stabilise, and if it does not come to believe that Ireland’s fiscal position is manageable, the country is destined, sooner or later, to activate the EU-International Monetary Fund (IMF) bailout package established in May.

Tuesday will provide the biggest test yet. The National Treasury Management Agency (NTMA) has committed to putting at least €1 billion worth of Irish Government bonds up for auction. If there were to be any serious problem with take-up, or if the rate of return offered were much above already high rates in the secondary market, real consideration would have to be given to seeking help.  

6. The Mercurial McGuire - Australian stock broker Peter McGuire, the man behind CWA Global Markets, apparently likes to make a lot of money from his customers, the Sydney Morning Herald's Stuart Washington reports in this must read. HT Gareth via email.

PETER McGUIRE is, by all appearances, the super-successful stockbroker fronting CWA Global Markets, with a fondness for A$200,000-plus Mercedes cars. In contrast to McGuire's smooth media manner, former staff portray him as a mercurial figure who demands a churn-and-burn mentality of his staff.

Or, as an October 2007 CWA presentation put it: “Clients are Bambi . . . we shoot Bambi.” If the team did not meet sales targets, former staff say, McGuire called them f---wits and dumb c---s. Sensitive company documents and tapes of phone conversations obtained by the Herald paint a picture of a sales-driven business that repeatedly puts its customers last.

7. 'A chilling fog rolling over the landscape' - Jesse's Cafe American looks at whether a push for new Special Drawing Rights could end up as a hunt for a new global reserve currency to replace the US dollar. He talks about currency wars and an inexorable slide towards competitive devaluations and capital controls. HT Gertraud

China and Russia and some of the other developing nations have been proposing a reformulated SDR, with less US dollar content, a broader representation of currencies, and the inclusion of gold and silver, as a suitable replacement for the US dollar as the global reserve currency. The US and UK are opposing the SDR as replacement to the US dollar as the new global reserve currency. They prefer to delay and postpone the discussions, and to maintain the status quo for as long as is possible to support their primacy in the financial markets.

Control of the money supply is a huge hand on the levers of financial and political power. It will be most interesting to see where the European Union comes out on this issue, especially in light of the recent drubbing that their banks have taken via dodgy dollar assets and a vicious dollar short squeeze, alleviated by a rescue from the Federal Reserve.

8. An interesting week ahead - Mohamed el Irian, the CEO of PIMCO (the world's biggest bond fund) writes at FTAlphaville that this next week could prove crucial for global financial markets. Firstly Europe's sovereign debt crisis is not solved,.

Market measures of risk for peripheral European countries (Greece, Ireland, Portugal and Spain) are at or near danger levels… despite exceptional support from the ECB, EU and IMF, and despite the implementation of adjustment measures on the part of some. The failure to reduce risk spreads means that the public sector bailout is not working. Rather than provide assurances of better times ahead and, thus, encourage new investments, ECB/EU/IMF support funding is being used by existing investors to exit their exposures to the most vulnerable peripheral European countries.

This situation cannot be sustained forever. It undermines any chance that the most vulnerable countries (e.g., Greece) have of limiting the collapse in their GDP and maintaining social cohesion; it contaminates the balance sheet of the ECB; it exposes the revolving nature of IMF resources to considerable risk; and it raises the risk of renewed contagion.

Secondly, competitive devaluations are ratcheting up trade and political tensions.

These latest foreign exchange developments bring to the fore an inconvenient reality. While not all industrial countries wish to make it explicit, they are happy (indeed eager) to see their currencies depreciate. They see this as helping them address the extremely difficult challenges associated with a protracted period of low growth, high unemployment, and limited policy effectiveness. The list of industrial countries wishing to depreciate their currencies is not matched by a list of emerging economies happy to let their currencies appreciate significantly.

As a result, foreign exchange tensions are mounting, and the price of gold has been driven to a new record level. This week will shed light on whether policymakers can do anything to deal with these two issues. If they continue to stumble and hesitate, what has been simmering may well come to a full boil in the next few months.

9. Tougher than we thought - The new Basel III rules on bank capital may be tougher than everyone originally thought, FT.com reports. HT John Walley via email.

The full impact of the new global bank capital rules announced at the weekend is likely to be 30 per cent tougher than the headline ratio suggests, according to regulators and industry participants who have studied private banking data. The data model the impact of earlier rule changes approved by the Basel Committee on Banking Supervision narrowing the definition of what banks can count towards core tier one capital ratio.

On Sunday, the committee ordered banks to raise their minimum core tier one capital from 2 per cent to 7 per cent of their risk weighted assets by 2019 or face restrictions on pay and bonuses. That more than tripled the old requirement of 2 per cent to force banks to hold more top quality capital against potential losses. But the banks will also have to subtract items such as goodwill, some tax credits and minority investments from equity and retained earnings.The data submitted to the committee suggest the real impact of the change could be equivalent to raising the minimum capital requirement from 2 per cent to 10 per cent for many banks.

The deductions are likely to cut many banks’ equity totals by between 30 per cent and 40 per cent, according to people who have seen the data. That compares with estimates of 10-15 per cent projected by many banking analysts based on publicly available data.

10. Here's Paul Henry's acceptance speech at the Qantas Awards. Watch it until the end. It's funny and rude. HT Rob via email.