Thursday's Top 10 with NZ Mint: Chinese tightening and property taxes loom; Australia's housing affordability squeeze; America's property tax death spiral; Jon Stewart does The Bernank; Dilberts

Here are my Top 10 links from around the Internet at 10 to 11 pm, brought to you in association with New Zealand Mint for your reading pleasure. My apologies for the appalling lateness. It's been a heck of a day.

I welcome your additions and comments below, or please send suggestions for Friday'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. One to watch - The Chinese are likely to hike official interest rates this weekend and bring forward the release of inflation data.

They are having to work very hard to push the inflation genie back in the bottle.

Also, some big cities in China are looking at trialling new property taxes to try to cool down their housing market.

All this is worrying a few Chinese stock investors.

Also worth watching very closely is an apparently large selloff in US Treasuries, the biggest in more than two years.

Is this the beginning of the end of that bubble?

Here's the detail from Bloomberg on the fear about a Chinese tightening and slowdown.

“Investors will be very cautious before this weekend pending the announcement of November inflation and a possible interest-rate hike,” said Li Jun, a strategist at Central China Securities Co. in Shanghai. “Uncertainty is about to peak and this may drag the market down.”  

2. Ooh ahh Cantonaaaa ... aaaah... not this time - The November 7 bank revolt in Europe was a flop, BBC reports. It turns out Man United's Eric Cantona didn't even pull his own money out of the bank and his wife had done advertisements for a bank. Ooo aaah? More like Oh dear.

Cantona had gone online to call for customers to empty their accounts on Tuesday in a "revolution" against a "corrupt, criminal" banking system.

But he himself failed to turn up at a bank where he had promised to withdraw "more than 1,500 euros". EU financial leaders have described the protest as irresponsible.  

3. Did we see this here? - In America the cheapest homes rose the most in price during the property bubble, and therefore fell the fastest when the easy credit was withdrawn, Barry Ritholz argues here. HT John

“During the great housing bubble boom, it was the least expensive homes whose prices went up the most. And now it is those homes that are suffering the most.

“That is where the most creative lending was,” said David Blitzer, the chairman of the index committee at Standard & Poor’s, arguing that the lax lending standards played a significant role in the inflation of prices.”

Of course, “Lending” is just another word for credit. This is consistent with what you would expect from a credit bubble. The higher end homes — often purchased for cash, or with a very substantial down payment — appreciated the least in percentage terms.  

4. Container ship go slow - Trying to work out what is happening with global trade is never easy, but it's sometimes worth looking at how fast container ships are travelling. When they start sailing slow that can say something about the state of global trade, The Australian reports. One to watch. HT Hugh via email.

NINETY per cent of the container ships heading to Northern Europe from Asia have been forced to slow to the speed of a "fresh breeze". A sudden slump in demand has caused the slowdown. Analysts said the ships had been ordered on to "extra-slow steaming" as a way of saving money and stretching out the work they have.

The average speed of container ships has been cut from 25 to 17 knots, which, according to the Beaufort scale, equates to a fresh breeze. Demand for imported goods from Asia has fallen, leaving shipping firms with significant excess capacity.

The purchasers of the cargo are usually happy with this arrangement as it postpones the arrival of goods they are struggling to sell. The situation in the shipping market has deteriorated so sharply that companies are expected to start idling vessels within weeks.  

5. No wonder the bubble is bursting - The Real Estate Institute of Australia has reported housing affordability there recorded its worst deterioration in a decade during the September quarter. HT Hugh via email. Check out the quote. You see the way his lip wobbles and the bead of sweat appears on his forehead.

David Airey, president of the REIA, says the results from the Deposit Power Housing Affordability report show the proportion of income required to meet loan repayments increased by 5.8 percentage points to 34.8%.

"These are quite alarming figures," he says. "It's quite an alarming state in the market... we could get to a place where people say they are starting to think about selling their properties."  

6. The property death spiral - We all know about the deflationary debt spiral. That's where a fall in prices and wages makes the debt picture worse in terms of incomes. A fall in asset prices makes debt bigger in that it wipes out equity and leaves less leeway for further problems.

Now there's another twist.

In America local governments raise a lot of their money through taxes on property values in a blunt sort of way (unlike rates in New Zealand which seem to adjust with property values...) In America a fall in property values simply reduces tax revenues. That's driving many local governments into bankruptcy. It's another aspect of the global debt spiral.

What's required is debt restructuring. ie banks and their shareholders and bondholders need to revalue their assets lower and clear the decks so we can all start again. In ye olden times it was called a debt jubilee.

 Here's Bloomberg with the story of how US state governments are suffering.

One aspect is the number of appeals over property valuations and rates.

Can people do the same here?

A fiscal flood that threatens to swamp local government budgets across the U.S. overflows from file cabinets in the office of Patty Halm, chair of the Michigan Tax Tribunal. The backlog of cases from taxpayers seeking to lower property-tax bills of more than $100,000 shot up to 14,236 this year from an annual average of about 6,000 during the past decade.

“We’re just getting swamped,” said Halm, 54, who was appointed in 2003.

“We’re constantly buying new file cabinets to hold all the cases. We even have six surplus file cabinets in the courtroom.”

U.S. home prices are 30 percent below their peak of April 2006, according to the seasonally adjusted S&P/Case-Shiller index of property values in 20 cities. They may drop 10 percent more, Greg Lippmann, a founder of New York-based LibreMax Capital LLC. Meanwhile, the Moody’s/REAL Commercial Property Price Index of U.S. commercial property is 43 percent below its October 2007 peak.

“If we look into the future, assessments will have to reflect the market value, and two years out, property-tax receipts will have to be coming down,” Michael Pagano, dean of the College of Urban Planning and Public Affairs at the University of Illinois at Chicago, said in a telephone interview. “If the appeals are largely successful, they will generate a lot more appeals.”  

7. Stress test failures - Unlike America's banking stress tests, which rebuilt market confidence, the result of Europe's banking stress tests has been less than inspiring, Bloomberg reports.

The failure of the EU tests to restore confidence in the region’s banks was underscored last month when Ireland directed its two biggest lenders, both of which passed the exams, to raise additional capital. Since the results were disclosed on July 23, the cost of insuring the senior debt of 110 European banks against default rose 113 basis points, or 1.13 percentage points, while credit-default swaps on 34 of the largest U.S. banks are unchanged, according to data compiled by Bloomberg.

Now, amid a widening European debt crisis, regulators from 27 nations are searching for ways to improve the tests, which will be repeated next year. That won’t be easy as long as national leaders and central banks remain unwilling to cede bank oversight to a central authority, said Nicolas Veron, a senior fellow at Bruegel, a Brussels-based economics research group.

“Financial nationalism prevented the tests from being credible or really useful,” said Veron, who’s also a visiting fellow at the Washington-based Peterson Institute for International Economics. “Nations view the bank tests as a competitive game among countries and not as a way to ensure the common good of European financial stability.”

8. America is next, say the Chinese - The Economic Times reports a key Chinese official saying that America's fiscal position is the next one to look at. The Chinese, understandably are intensely aware, of the risks of a collapse in the value of all those US Treasury bonds they have bought over the years. HT Gertraud via email.

Li Daokui, an academic member of the central bank's monetary policy committee, said that U.S. bond prices and the dollar would fall when the European economic situation stabilised.

"For now, market attention is still on Europe and for the coming 6-12 months, it will not shift to the United States," Li said, when asked about U.S. President Barack Obama's plan to extend tax cuts for all Americans.

"But we should be clear in our minds that the fiscal situation in the United States is much worse than in Europe. In one or two years, when the European debt situation stabilises, attention of financial markets will definitely shift to the United States. At that time, U.S. Treasury bonds and the dollar will experience considerable declines."

9. Zombies and the Bush tax cuts - Jon Stewart does his thing on Barack Obama's backdown on tax cuts for the rich. This is the best explanation of what happened I've seen yet. And I laughed a lot too.

10. Totally hilarious video about the Fed and QE II from Jon Stewart.