Monday's Top 10 with NZ Mint: Why inequality leads to financial crises; How to profit from inflation; 6 mln Super Bowl chicken wings; Dilberts

Here are my Top 10 links from around the Internet at 10 to 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. NZ$47 billion hangover - Karyn Scherer at NZHerald has a useful piece on rural debt and farm valuations.Here's the best bit.

Former banker and registered valuer Bruce Wills wrote a paper in 2006 while taking part in the Kellogg Rural Leadership Programme at Massey University that suggested prices were over-valued...

Quelle surprise.

He was rubbished at the time.

By farmers.

And bankers.

Alike.

The paper, titled The NZ Rural Property Market: Where To From Here?, concluded that the market was experiencing "irrational exuberance", and that the prices being paid for rural land could not be justified by farm incomes. It predicted prices would fall by 20 to 30 per cent.

"I did a number of presentations of that around the country and in several of them the room was full of bankers, and basically I got bollocked from pillar to post," he recalls. "They just wiped their hands and told me I was completely out of touch."  

And this bit caught my interest...

Wills insists the South Canterbury Finance receivership was no surprise to rural bankers.

In his banking days, "if someone came to us with a really stretched proposal, we used to send them down to South Canterbury Finance. They were the lender of last resort for many years." 

2. Prices are tanking in Perth - ABC reports that sales volume for houses in Perth have dropped 30% over the last year. Here it comes over the Tasman. Nice to see too that Perth's real estate agents only see buying opportunities... HT Hugh P via email.

By the end of December, Perth had experienced its ninth consecutive month of low sales turnover. Currently about 15,600 properties are listed for sale in the metropolitan area, which is 47 per cent more than at the same time last year.

REIWA president Alan Bourke, says it's a buyer's market. "In a lot of ways we believe it's the 'if only' year, in other words if only I'd bought in 2011 when there was plenty of choice because when things tighten up there will be a lot of people scrambling to get back into the market place and that stock level will go down very fast," he said  

3.Mike Pero Real Estate? - Greg Ninness at the Sunday Star Times reports the real estate industry is abuzz with rumours (but not sales) about Mike Pero potentially launching a low cost real estate agency business.

Something is up, judging from these quotes from Mike Pero Mortgages' Shaun Riley.

''At this stage we have got nothing that I would put in print,'' he said.

''There's nothing that I can confirm. We will continue to look at it.'' He said talk of an announcement next week came from an off-hand remark.

''Somebody asked me and I said that to shut them up. I don't know what may happen next week at all.''

4. A Super Bowl of greed - The Super Bowl being played today will generate over US$10 billion of spending. Ads will cost over US$2.6 million per 30 second spot. Yet this orgy of consumption around a football game just highlights the divergent path of two Americas, Al Lewis comments at WSJ.com.

As much as TVs cost, Super Bowl tickets cost more. A ticket averaged nearly $5,000 on the resale market last week. Some were priced at more than $277,000. The average food-stamp recipient receives $133 a month.

Yet some of us can blow enough loot to buy a house, a car and a big-screen TV on just one ticket. Do you know what it costs to park? A mile from Cowboys Stadium in Arlington, Texas, $55. Across the street, more than $1,000, according to Parkwhiz.com.

The website listed one spot at a nearby Taco Bell for $330. The stadium -- just across from a Wal-Mart -- cost $1.2 billion to build. Taxpayers put up $325 million of that war chest.

5. A Super Bowl of chicken wings - Bloomberg reports that Buffalo Wild Wings expects to sell 6 million chicken wings on Super Bowl Sunday.

6. How to profit from inflation -The WSJ has a hand 'how to' guide on how to profit from inflation. Interestingly, it leaves out real estate and gold as useful investments. It actually suggests short dated term deposits. Basically, it says short term cash is king.

7. The link between inequality and crises - Michael Kumhof and Romain Ranciere write here at VoxEu.org about the links between inequality and financial crises. They find some remarkable similarities between the 1929 crisis and the 2008 crisis.

We focus on two remarkable similarities between the two pre-crisis eras. Both were characterised by a sharp increase in income inequality, and by a similarly sharp increase in household debt leverage. We also propose a theoretical explanation for the linkage between income inequality, high and growing debt leverage, financial fragility, and ultimately financial crises. Borrowing and higher debt leverage appears to have helped the poor and the middle-class to cope with the erosion of their relative income position by borrowing to maintain higher living standards.

Meanwhile, the rich accumulated more and more assets and in particular invested in assets backed by loans to the poor and the middle class. The consequence of having a lower increase in consumption inequality compared to income inequality has therefore been a higher wealth inequality. The increase in debt leverage of the bottom group of the distribution has implications for both the size of the US financial industry and its vulnerability to financial crises. The increase in the reliance on debt for the bottom group and the increase in wealth of the top group generated a higher demand for financial intermediation.

Between 1981 and 2008, the US financial sector grew rapidly, with the ratio of private credit to GDP more than doubling from 90% to 210%. The share of the financial industry in GDP doubled as well, from 4% to 8%. As borrowers’ debt leverage increases, the economy becomes gradually more vulnerable to the risk of financial crises. When a crisis eventually materialised in the fall of 2008, it was accompanied by a generalised wave of defaults, with 10% of mortgage loans becoming delinquent, and a sharp output contraction.  

8. 'I don't want youse Kiwis' - Peter Crane, one of the family that once controlled Aussie building supplies company Crane, has launched an internet campaign to stop Fletcher Building buying Crane.

He vaguely suggests some issues around concentration of risk and the problems of merging big companies but signally fails to convince.

No wonder the Aussie funds are more than happy to dump this dog on Fletcher Building.

Here's the video.

9. The mad rush for family trusts - Rob Stock at the Sunday Star Times picks up on the licking of the lips from the family trust industry as they gear up for the end of the gift duty.

Lawyers say the abolition of gift duty, which Labour MP David Cunliffe dubbed a National Party policy for the "plutocrats of Remuera", will have the effect of undermining other legislation. Because it will be so easy to gift assets into trusts, lawyers say, the Family Court will increasingly find itself with no assets to share out between separating couples, undermining the Property Relationships Act.

"If gift duty goes, there will be no doubt about what will happen. Certainly in the family protection context, there is not going to be anything to make a claim on," Auckland lawyer Greg Kelly said. "The effect is the 50/50 provision of the Property Relationships Act are being undermined by the establishment of trusts." Trusts are increasingly rendering prenuptial agreements pointless, say lawyers, and once gift duty is gone, prenups will fall into greater disuse.

It is far easier to put assets into a trust than present a future partner with a prenuptial agreement, said Kelly. Another piece of legislation that will be weakened, critics say, is the Family Protection Act, which gives courts power to enforce claims on an estate of people who feel they have been unfairly left out of a will.  

10. Totally relevant video - Australian property spruiker Jamie McIntyre argues here to Australian rental property investors that Pheonix Arizona is the place to be... Watch it and weep...

He says he's pretty excited...There are 10 year rental guarantees and 10 year capital guarantees.... He says it's a once in a 100 year opportunity. Sound familiar? HT Mish. He was tipped off by a Kiwi reader.