Thursday's Top 10 with NZ Mint: Chinese food prices explode in November; An age of deleveraging; An Inland Empire nightmare; How Allan Hubbard killed Team Omega; Dilbert

Here are my Top 10 links from around the Internet at 10 to 11am, 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.

1. Chinese inflation reports - China Daily reports that in the first 10 days of November, China's average wholesale prices for 18 types of vegetable in 36 cities surged by 62.4 percent year-on-year.

HT Reece via email who wonders how this might effects us here in NZ.

China is unlikely to become a large consumer market when about half of Chinese urban families plan to tighten their purse strings next year amid mounting inflation and stagnant incomes, a new survey has found.

This next bit is fascinating.

Chinese netizens have conducted heated online discussions to choose the character of the year, with (zhang), indicating price rises, the most popular so far. Inflation hits 2010 character poll voting Tianya.cn, a popular online forum in China, opened a platform for Internet users to nominate the "Character of the Year 2010" on Nov 2. The nomination had attracted more than 100,000 clicks and 4,000 replies by 4:30 pm on Tuesday.

And zhang attracted more than 80,000 clicks. Summarizing the major events of a year with a character first became popular in Japan in the mid-1990s. Some Chinese media introduced this practice in 2006. "Prices for everything are rising so much that I am panicking," said a netizen named qqq915 on Nov 3, while giving his reasons for supporting zhang as the character of 2010.

Since the beginning of 2010, the price of sugar has increased 100 percent and the price of garlic ten-fold in some regions of China. Hot pepper rose from 4 yuan ($0.60) a kilogram to 40 yuan in May in Beijing, and the price of potatoes surged 84.8 percent from January to June  

2. The Age of Debt deleveraging - John Mauldin writes in detail at The Market Oracle about debt deleveraging. It's unrelenting and sobering. My must-read of the day. He reviews a new book by Gary Shilling called The Age of Deleveraging. HT Don via email.

The Age of Deleveraging: Investment strategies for a decade of slow growth and deflation, published by John Wiley & Sons, Dr. A. Gary Shilling

This deleveraging will probably take a decade or more to complete—and that’s the good news. The ground to cover is so great that if it were traversed in a year or two, major economies would experience depressions worse than in the 1930s. This deleveraging and other forces will result in slow economic growth and probably deflation for many years. And as Japan has shown, these are difficult conditions to offset with monetary and fiscal policies. The insidious reality is that this deleveraging doesn’t occur in a straight line, but is highlighted by a series of seemingly isolated events.

After each, the feeling is that it’s over, all may be well, but then follows the next crisis.Other roadblocks on the deleveraging highway may include a crisis in U.S. commercial real estate that could exceed the earlier one in housing. Then there’s a possible hard landing in China that exceeds the 2008 weakness as the government’s measures to cool the red hot property market and economy in general take hold. A slow-motion train wreck in Japan will probably occur sooner or later as her all-important exports fall along with weakening U.S. consumer willingness to buy them, and as her already subdued domestic sector suffers from her rapidly aging population.  

3. The American nightmare in the Inland empire - I drove through the sprawl of new, empty houses in the desert between Los Angeles and Las Vegas in late December 2008. It seemed awful empty and desperate even then.

Here's some fresher reporting from Yasha Levine on what's happening in the wreckage of America's new suburbs in the wake of the housing boom and bust. This dispatch is from Victorville, California. HT Anthony via email.

Victorville is what they call an “exurb,” one of thousands of new sub-suburban sprawls all around the country built for poor Americans. To flocking homeowners, Victorville must have seemed like a glorious reaffirmation about everything good and right about American values, a place where the poor could finally afford a home of their own. Instead, it turned into just one more slaughtering ground in the the biggest scam of the century, a place where tens of thousands were lured to be ripped off and set adrift. Victorville was never meant for the world of the living. Out on the horizon, you could make outlines of lofty snow-capped mountains.

But under your feet, it’s nothing but a patch of dried-out dirt. These houses were built here at the whim of WaMu and Countrywide Financial executive types just so they could have a product to push, a part of a complicated system of speculator fraud meant to do only one thing: transfer money from the lower-class suckers straight into executive bonuses. For that they needed a constant supply of fresh meat, and Victorville performed exceedingly well. In 2007, a year in which five million Americans migrated to shitholes just like this, Victorville was the second-fastest growing one of them.

Victorville’s location puts it in class all its own. It’s the most barren, most remote commuter city in the whole of Southern California, a lifeless wasteland an hour’s drive from the farthest reaches of the Inland Empire. To get here, you need to scale a huge mountain range that acts like the Shield Wall of Arrakis, a natural barricade separating civilization from the desert. Commuters burned gallons of gas climbing 4,000 ft. each way.

4. The problem with QE II - Bloomberg reports that low US interest rates and the QE II by The Bernank are simply squeezing US corporate cash out into the emerging economies and allowing foreign companies, including New Zealand ones, to borrow cheaply in America.

Chairman Ben S. Bernanke and his colleagues appear to be fueling a foreign-investment surge, underscoring the difficulty of stimulating the economy through monetary policy with interest rates already near record lows. “You’re seeing leakage from quantitative easing,” said Stephen Wood, chief market strategist for Russell Investments in New York, which has $140 billion under management.

“That leakage is going into emerging markets, commodity-based economies, commodities themselves and non-U.S. opportunities.” U.S. corporations have issued more than $1.07 trillion in debt so far this year, according to data compiled by Bloomberg. Foreign companies also are tapping U.S. markets for cheap cash, selling $605.9 billion in debt through Nov. 15 compared with $371.8 billion for all of 2007, before the Fed cut the overnight bank-lending rate to a range of zero to 0.25 percent.

5. How about a US GST? - Would a sales tax help America dig itself out from under its debt mountain? Serious people are now suggesting it, Bloomberg reports.

Alice Rivlin, a member of President Barack Obama’s deficit-reduction commission, is trying to stir a debate over imposing a national sales tax to reduce the deficit as part of a plan that includes steep Medicare cuts and a one-year payroll-tax holiday to spark economic growth. Rivlin, as part of a separate 19-member group sponsored by the Bipartisan Policy Center in Washington, offered a plan for a 6.5 percent sales tax.

Her recommendation comes as the president’s panel prepares a Dec. 1 report on options for Congress to trim the national debt. “We are proposing a very drastic tax reform,” said Rivlin, a Democrat and former Federal Reserve vice chairwoman. “It would give us a slightly more progressive tax system than we have now and is definitely simpler and more pro-growth.”

6. The biggest villains ? - Joe Nocera reckons it was the ratings agencies and Alan Greenspan.

If you had to absolutely pick a villain, who would it be? Was it the lenders. The GSEs? The ratings agencies? Goldman Sachs?

Institutionally, the biggest villains by far were the ratings agencies. If they hadn’t sold their souls for filthy lucre, if they had stuck to what their mission was, and not slapped a triple-A rating on every Tom-Dick-and-Harry mortgage-backed security that came down the pike, this could never have happened.

Individually, I mean, I honestly think the biggest villain is Alan Greenspan. Half of his job was to be a regulator, and he not only ignored that half of the job, he affirmatively turned his back on that half of the job. He’s now blaming it all on Fannie and Freddie, which is the classic Republican excuse for the crisis because it allows them to say government did it, it allows them to take all of the failings of the marketplace completely off the hook.

7. The buck never really stops - Bloomberg reports the European banks and their governments are wriggling to try to avoid the bits of Basel III that force them to reduce leverage. How much has anyone learnt?

Banks in Europe may escape global rules designed to limit their debt, as several countries push the European Union to drop a so-called leverage ratio, two people close to the discussions said. A majority of nations in the 27-country EU oppose introducing a binding leverage ratio that was adopted last week by the Group of 20 countries, according to the people, who declined to be identified because the discussions are private.

The countries, including Sweden and France, say the ratio might encourage banks to pursue risky activities, the people said.

“The leverage ratio as it is currently constructed is a rather blunt instrument,” Rob McIvor, a spokesman for the Association for Financial Markets in Europe, said in a telephone interview. “It does not take into account different institutions' business models or structures.”

8. How Hubbard killed Team Omega - Tim Hunter at BusinessDay reports on details in the latest Hubbard book of how 'Team Omega' were shut down by Hubbard. Great detail.

The Omegas were SCF director Stuart Nattrass and three of Hubbard's senior executives, Andy Borland of apple company Scales Corp, former SCF chief financial officer Graeme Brown and Hubbard Churcher partner Nigel Gormack. On returning to Timaru, Hubbard called the Omegas to a meeting. ``It was the Omega's turn to be stunned,'' wrote Green. ``Allan [Hubbard] handed the phone to Borland.

On the other end of the line was an Auckland lawyer telling him that the Omega team was stripped of their authority, their services no longer required. They were given no chance to explain their case.''

In sacking the Omega Team, Hubbard turned his back on the solution they had been working on. In particular, they had lined up an Australian private equity buyer for one of Hubbard's companies, Helicopters NZ, which could produce a much-needed cash injection for SCF of about $117 million.

They also sought out a new adviser, First NZ Capital, to bring a fresh approach for SCF and were advocating a scheme to bring in new capital that would have seriously diluted Hubbard's shareholding. ``However, word reached the ears of Neil Paviour-Smith, managing director of Forsyth Barr.

Paviour-Smith was a long-time consultant to Allan Hubbard who'd earned $1m in fees advising Allan and the SCF board on their proposed stockmarket float in 2005 ... No professional adviser wants to lose a client, and Paviour-Smith wasted no time in protecting his patch.'' In Green's account, Paviour-Smith produced an option more palatable to Hubbard - the float of Southbury Group with a $100m capital raising - which enabled him to keep control.

9. Merkel's stuffup? - The FT reports Everyone in Europe with too much debt is grumpy at Angela Merkel for suggesting they will have to stop kicking the can down the road at some point and actually repay their debt, and if they don't, bond holders might have to take haircuts. Oh, the audacity of the woman. The euro is eventually toast.

The drive by Angela Merkel, the German chancellor, to rewrite the European Union's treaties to set up a new bail-out system for future Greek-like collapses -- and her insistence that private investors bear more of the cost of such rescues -- was quietly resented when she bulldozed it through last month's summit of EU leaders.

But as bond markets have reacted and plummeted in the weeks since, that resentment has begun to boil over, with increasing accusations that Ms Merkel has put many of her fellow eurozone leaders in untenable positions in order to reinforce her own standing with German taxpayers.

10. Totally relevant video - Jon Stewart talk to Bethany McLean, who exposed Enron, and Joe Nocera about the global financial crisis.