Here are my Top 10 links from around the Internet at 10 past 11 am, 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 Wednesday'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. 'Leaky homes often worthless' - Quotable Value's Glenda Whitehead has written this interesting analysis of how to value a leaky home in Auckland. She indicates that often the only value left in any property is the value of the land. She gives an example.
"The above example, in which the Market Value is equivalent to the land value, is from our experience, not uncommon in the Auckland market."
What are you seeing?
The big issue at the moment is a logjam of rebuilding activity waiting for a deal between the banks and the government.
Currently the central and local governments have agreed to pay up to 50% of the cost of repair or rebuilding, but the owner still often needs to borrow the other 50% using 'existing lending criteria'.
This is the problem. Many can't afford to borrow more because they either don't have any equity left or don't have enough income to service the extra debt.\
So someone is going to have to take a hit?
But who?
The taxpayers or the banks.
2. What the Chinese would say - Thomas Friedman at the New York Times speculates about what Chinese diplomats would be saying about America if Wikileaks got hold of their cables. Sort of entertaining. Here's the best bits.
Americans just had what they call an “election.” Best we could tell it involved one congressman trying to raise more money than the other (all from businesses they are supposed to be regulating) so he could tell bigger lies on TV more often about the other guy before the other guy could do it to him.
This leaves us relieved. It means America will do nothing serious to fix its structural problems: a ballooning deficit, declining educational performance, crumbling infrastructure and diminished immigration of new talent.
Finally, record numbers of U.S. high school students are now studying Chinese, which should guarantee us a steady supply of cheap labor that speaks our language here, as we use our $2.3 trillion in reserves to quietly buy up U.S. factories.
In sum, things are going well for China in America.
3. China's insatiable demand for diesel - The FT.com has an excellent piece on how power shortages in China's red-hot (and cleaning) economy are forcing many factory owners to fire up their generators, sucking up yet more diesel.
This is helping to drive up oil prices globally towards US$100/barrel.
4. Oil at US$100 a barrel and petrol at US$3 a gallon? - What would that do to the political and economic landscape in America? It wouldn't be good. Here's CNN with a look at the oil price.
And the Fed's role in this. No wonder Bernanke isn't popular in the land of SUVs and four car garages.
Part of the problem is that the Federal Reserve may be fueling (pardon the pun) the rise in oil with its controversial plan to buy $600 billion in long-term Treasury bonds. Fed critics argue that this quantitative easing program, the second since the onset of the financial crisis two years ago, may weaken the dollar further and lead to higher commodity prices.
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5. 'We just make it up' - The Wikileaks scoops are starting to get really interesting. This one picked up by Reuters shows how one Chinese leader has no faith in the middle kingdom's own GDP figures. Here's the detail. HT David via IM.
China's GDP figures are "man-made" and therefore unreliable, the man who is expected to be the country's next head of government said in 2007, according to U.S. diplomatic cables released by WikiLeaks.
Li Keqiang, head of the Communist Party in northeastern Liaoning province at the time, was unusually candid in his assessment of local economic data at a dinner with then-U.S. Ambassador to China Clark Randt, according to a confidential memo sent after the meeting and published on the WikiLeaks website.
The U.S. cable reported that Li, who is now a vice premier, focused on just three data points to evaluate Liaoning's economy: electricity consumption, rail cargo volume and bank lending.
"By looking at these three figures, Li said he can measure with relative accuracy the speed of economic growth. All other figures, especially GDP statistics, are 'for reference only,' he said smiling," the cable added.
6. What would happen to Australia and NZ if China's growth halved? - Leith van Onselen at The Unconventional Economist is doing some excellent stuff on the Australian economy and housing market. Now he asks the big question: what happens if China's growth rate halved to 5%? HT Hugh.
If China's growth slows considerably then Australia's Terms of Trade could crash as increased commodity supply meets diminishing demand. And if this happens, then all the positive effects on employment, incomes, growth and the Government's fiscal position received by Australia over the past decade would unwind.
To make matters worse, Australia's banks, which have borrowed heavily offshore to inflate the housing bubble, would once again find it extremely difficult to roll-over their maturing foreign borrowings. Only, unlike in 2008, the Australian Government might not be in the position to guarantee their debt given the significant other drains on the budget from diminishing tax receipts and rising welfare payments.
Obviously, any contraction of credit would also have a devastating effect on house prices.
He then goes on to talk about NZ.
Any meaningful slowdown of the Chinese economy would, therefore, adversely impact New Zealand both directly and indirectly via slower Australian growth, and would translate into a contraction of aggregate demand, higher unemployment, and a worsening Budget bottom-line.
And because New Zealand has even higher external liabilities than Australia - predominantly due to offshore borrowing by the banks to fund housing - it would be equally if not more exposed to a liquidity crisis.
Once again, I hope that the bears are wrong and the China growth story continues. Otherwise the Trans-Tasman economies face an extremely challenging period ahead.
7. The Fed's US$120 million printer error - We all know the Fed is printing money to try to get the economy going again. But it's also printing money badly. Fastcompany reports that the Fed printed 1.1 billion new US$100 bills and found afterwards that every one of them had a slight crease in them that made them useless.
Each bill costs 12 cents to make so it cost the Fed US$120 million to incorrectly print US$110 billion. Spreadsheets are much easier. HT Troy.
The Fed had triumphantly announced the forthcoming bills back in April, touting advanced features, including color-shifting bells and a blue security strip that is woven, rather than printed, into the paper. There appeared online a video with heroic music and an involved interactive feature that allowed people to check out a virtual incarnation of the bill. Then, in October, the Fed quietly announced that it was having "a problem with sporadic creasing of the paper" and would need to delay the release date on the bills slightly. But only now have CNBC's sources been forthcoming about the extent of the problem.
The bills all came out looking normal, they say. But upon closer inspection, many of them contained a small crease. When the edges of the bill were tugged, smoothing the surface, it revealed a blank, unprinted strip across the face of the bill.
8. Australia's over-valued land - Gavin Putland at Land Values Research Group in Australia has produced an excellent chart showing how Australian land prices have risen relative to GDP in the last decade. It's clearly a bubble. HT Hugh.
Between mid 2009 and mid 2010, the total value of residential land rose from 180% of annual GDP to more than 210%. In those 12 months, where did Australia find an extra 4 months GDP to pump into land values? Nowhere. Buyers paid higher prices on a sample of sites, and that sample was deemed to be representative, notwithstanding that the buyers paid too much.
Does that mean the ABS values are wrong? No. The task of the property valuer is to measure the behaviour of the market, not to second-guess it. Discerning when the market is ripe for a “correction” is the task of economists, whose past form is not encouraging.
9. 'Many of the nation's billionaires are on the warpath' - Vermont's leftie senator Bernie Sanders tees off in Congress about income inequality in America. The top 1% earn more income than the bottom 50%. The top 1% earn 23.5% of all income. HT Eric.
This sort of radical talk might get a run on in this environment. Worth watching. This is a senator, albeit off the reservation, talking here.
I agree with everything he said. Do we have similar problems here?
10. Totally bizarre video - 'I have a bad case of diarrhea'. What is it about the Japanese?
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