Here are my Top 10 links from around the Internet at 10 past 3 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 tomorrow'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. The problem with Egypt - The world's markets woke up last night to the civil unrest in Egypt and the uncertainties that generates. Reuters reports the Dow suffered its biggest one day loss in 6 months.
The market drop ended the Dow's eight-week winning streak and pushed the S&P 500 below its 14-day moving average for the first time in two months. Disappointing results from Amazon.com and Ford further added to the gloom. Developments in the Middle East could be a trigger for investors to sell at a time when many expected a correction after a market rally of about 18 percent since September.
"I think the next two to three weeks, the crisis in Egypt and potentially across the Middle East, might be an excuse for a big selloff of 5 to 10 percent," said Keith Wirtz, president and chief investment officer at Fifth Third Asset Management in Cincinnati, Ohio.
2. Yet still Helicopter Ben is tipping the money out the door - Reuters reports America's economy grew at an annual rate of 3.2% in the December quarter, driven by a rebound in consumer spending and exports. But the problem is it's a somewhat jobless recovery. Corporates remain cash rich and reluctant to invest in creating American jobs. Instead they are investing overseas in markets with cheaper labour and stronger economies.
So America keeps printing money, flooding the engine. That petrol is now spilling out the sides and sparking inflation fires in emerging economies.
Part of the reason for the civil unrest that is sweeping places such as Tunisia, Yemen and Egypt is the sharp rise in commodity and food prices in recent months.
Even with growth quickening, progress reducing unemployment has been painfully slow, and the report is little comfort for the millions of unemployed Americans, or for U.S. central bank officials on a jobs-creation vigil.
On Wednesday, Fed officials voiced concern the pace of the recovery was still not strong enough to significantly lower unemployment and reiterated a commitment to a $600 billion stimulus effort through the purchase of government bonds. Businesses have been hesitant to hire but have used their vast cash reserves for investments, and spending on equipment and software notched a seventh straight quarterly gain.
3. America's budget deficit - If John Key thinks we have problem, then it's nowhere near as bad as the one in America where Congressional Budget Office has forecast a deficit of 9.8% of GDP or US$1.5 trillion this year, BBC reported.
It warned that its forecasts assumed Congress would not pass further legislation that adds more to the deficit, something that has not been borne out in recent history.
"[The forecasts] understate the budget deficits that would occur if many policies currently in place were continued, rather than allowed to expire as scheduled under current law." Even if these assumptions turn out to be correct, the CBO said US government debt would rise from the current 62% to 77% of economic output by 2021.
And with interest rates likely to rise as the economy recovers, the Office said the cost to US taxpayers of the interest payments on that debt was "poised to skyrocket over the next decade" from 1.5% to 3.3% of output.
The budget watchdog also reiterated its concern that the outlook beyond 2021 for public finances remained unhealthy. "The ageing of the population and rising costs for healthcare will push federal spending as a percentage of [gross domestic product] well above that in recent decades," the report said.
4. Why America seems broken - Here's how ugly the health system in America is. A Vietnam veteran with cancer lost his insurance coverage after his wife accidentally underpaid a premium online by 2 cents, which mean he was bumped off the list for a life saving transplant.
This is obviously a story of an adminstrative cockup, bit it tells you a lot about how America operates on the ground.
The guy's biopsy was about to start, but was cancelled when the nurse received a phone call to say he wasn't insured. ABC News has the story. The veteran was reinstated when the media found out. HT Troy via email.
Doctors at Presbyterian/St. Luke's Medical Center in Denver, where Ron Flanagan was undergoing treatment, had a stem cell donor at the ready and had told Flanagan they needed to complete the transplant before the end of February, that was before he lost his insurance.
As of today Flanagan is trying to get back on the transplant list. Flanagan was at the hospital preparing for a bone biopsy when his wife orignally delivered the disappointing news.
"The nurses were just getting ready to do the biopsy when my wife popped into the office and told them, 'Stop. We don't have any insurance,'" Flanagan told KMGH.
Ceridian's First Statement In a written statement to KMGH prior to be contacted by ABC News, Ceridian said, "We did not receive a full and timely payment and [Mrs. Flanagan] was provided several notices of the shortage and a grace period reminder notice on the last invoice, along with extended grace dates as provided for under COBRA regulations.
"Since the payment was not full," the statement continues, "it fit into the definition in the regulations of an 'insufficient payment.' ... Ceridian understands nothing is more important than one's health. ... Unfortunately, we simply do not have the capacity to be able to personally call continuants and remind them of the status of their Cobra benefits."
5. When the props are pulled out - The big problem with the immediate response to the Global Financial Crisis was that all that was needed was a few props, a bit of time, some band aids and then everything would come right. Governments jumped in to fill the hole created by the collapse of housing markets and the pain from too much debt.
Reality hits home and the inevitable contraction comes when the government either chooses or is forced to stop pumping fresh public money into the hole. British consumer confidence has collapsed in the last month as the realisation of the new government's austerity plan hits home. Britain has also just increased its GST (VAT) rate.
When the government spending is pulled back there is no 'natural' replacement. So values and economies have to subside to repair. It's impossible to trick away or delay the debt. If it's too high, eventually it will get you.
Unless you either choose to restructure or inflate it away...America is trying to inflate away their debt using the monetary weapon of mass destruction they have at their disposal -- the power to print the world's reserve currency.
The only problem with printing money to reduce the real value of debt is the inflation can lead to higher interest rates, which makes servicing the debt difficult.
Even the US Federal Reserve can't keep long term interest rates low forever. Although the Japanese have tried for 20 years. Japan did get another credit rating downgrade this week...
The first taste of the fiscal tightening to have a widespread impact on consumers appeared to have hit sentiment hard, researchers said, even before the full impact of the public spending cuts is felt. "In the 35 years since the index began, confidence has only slumped this much on six occasions, the last being in the midst of the 1992 recession," said Nick Moon, managing director at GfK NOP Social Research.
"Today's figures, when combined with the bleak economic forecast, will make talk of a double-dip recession unavoidable."
6. How not to do a PPP - Prime Minister John Key again mentioned in passing this week the idea of public private partnerships where private money is used to build public infrastructure such as roads and schools and hospital. The asset is built and operated by the private sector and then leased back to the government. In Britain they are called Private Finance Initiatives.
Now the Telegraph (of all papers) is running a series of articles about how PFIs have delivered super profits to private companies and their owners at the taxpayers expense. This has been an issue in Australia too where the Macquarie Millionaires have done well out of the PPPs over the Tasman. HT Kokila via email.
The ski resort of Chamonix, dramatically overlooked by Mont Blanc, is not quite the most expensive in the Alps – but it keeps its end up. The flashiest restaurant, La Cabane, charges £19 for a starter and £33 for a main course. The best room in the top hotel, the Relais & Chateaux Albert the First, costs £420 a night. All this week, The Daily Telegraph has been exposing a different kind of spending – the amazing sums taken from the taxpayer under the Private Finance Initiative.
And all this week, eating in that restaurant and living in that hotel room, has been one of the principal beneficiaries. His name is David Metter. He is 58 years old. You have almost certainly never heard of him – he keeps an extremely low profile – but he has made his fortune, conservatively estimated at £60 million, out of you. Under the PFI, Innisfree and other private investors build and operate such facilities, then effectively rent them to the state – at a substantial premium.
The Daily Telegraph disclosed this week that for an NHS hospital in Bromley which cost £118 million to build, taxpayers will end up paying 10 times as much – £1.2 billion – to the PFI owners. It owns four-fifths of the PFI school in Clacton which has now closed – but for which taxpayers must still pay it £1.4 million a year, Innisfree’s share of the deal, until 2035.
It owns the Birmingham school where parents couldn’t start an after-hours club to keep their kids off the streets – because Innisfree charged £70 per hour for a caretaker. It had a 50 per cent stake in the calamitous Defence Animal Centre deal, where each dog kennel cost more per night than a five-star hotel room (though admittedly not as much as Mr Metter’s suite in Chamonix.)
7. That downgrade - Ambrose Evans Pritchard at the Telegraph writes about what the Japanese credit rating downgrade means for Britain and America, both of whom also have budget problems, bit debts and ageing populations.
The move is a chilly reminder that sovereign debt woes continue to fester across much of the industrial world, and still pose a threat to the fragile global recovery. The US rating agency cut Japan's $10.6 trillion (£6.6 trillion) debt one notch to AA-, warning that the mix of government paralysis, a shrinking workforce and a fast-rising interest burden have left the country's debt dynamics on an unsustainable footing.
Julian Jessop, from Capital Economics, said the unfolding drama in Tokyo has global implications since Japan is the world's top external creditor with $3 trillion of net assets abroad.
"This is potentially a much bigger story than any default in Greece," he said. The concern is that Japanese banks, pension funds and life insurers may forced to repatriate large sums to cover losses at home if the fiscal crisis triggers a jump in bond yields. This could set off a worldwide fall in asset prices. The Bank for International Settlements has warned that simmering fiscal problems in the rich countries are nearing "boiling point", with a risk of an "abrupt rise" in bond yields as investors choke on excess debt.
How is it one man's work for the year can generate value for himself worth US$5 billion in one year. How much value has this one man effectively skimmed, gamed and traded away off the work of millions of other people producing the goods and services underneath the debt and equity he owned?
Is this how capitalism should work?
The Wall Street Journal first reported Paulson's payout in its Friday edition, and investors familiar with Paulson's portfolios said the number is likely correct given the manager's asset size and his recent profitable bets on Citigroup (C.N) and gold. More generally, Paulson's eye-popping payday confirms that hedge funds are still Wall Street's gold mine, where hefty fees make hundreds of managers extremely rich.
But it also underscores concerns among investors that they may not always be getting their money's worth, especially when hedge fund returns lag behind the broader markets. For Paulson, who now ranks among the likes of Warren Buffett and Pimco's Bill Gross as the world's most closely watched investors, the payday comes after he reversed deep losses in his funds halfway through the year. And it may finally put to rest speculation that his investing prowess was limited to one lucky bet during the subprime era.
9. Inequality in America is worse than in Tunisia or Yemen or Egypt - Washington's Blog on Naked Capitalism points out America's record on equality, in particular its gini coefficient, which is the widely accepted measure of equality. New Zealand is less equal than Australia, but not as bad as America.
Egyptian, Tunisian and Yemeni protesters all say that inequality is one of the main reasons they’re protesting. However, the U.S. actually has much greater inequality than in any of those countries. Specifically, the “Gini Coefficient” – the figure economists use to measure inequality – is higher in the U.S.
So why are Egyptians rioting, while the Americans are complacent? Well, Americans – until recently – have been some of the wealthiest people in the world, with most having plenty of comforts (and/or entertainment) and more than enough to eat. But another reason is that – as Dan Ariely of Duke University and Michael I. Norton of Harvard Business School demonstrate – Americans consistently underestimate the amount of inequality in our nation.
10. Totally relevant video - Here's how to milk a cow Chinese style. Something for the workers at Crafars to watch... Not really.
But it sure made this son of a dairy farmer laugh harder than I have for a long time. I'm easily pleased.
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