Weekend Top 10 at 10 with NZ Mint: NZ's negative housing multipliers; Dong devalued; Just Google Mark Bryers; Queenstown land prices halve; Dilbert

Here are my Top 10 links from around the Internet at 10 to 4 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 Monday'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. More than just copycats - China's filings of new patents rose 56.2% in 2010 and it is now the fourth largest source of patents in the world. Chinese telecommunications equipment companies Huawei and ZTE were in the top 10 companies to file patents, chinaeconomicreview.com reported.

2. The inequality that matters - Tyler Cowen has written a measured piece on inequality that's well worth reading.

If you take the 1979–2005 period, the average incomes of the bottom fifth of households increased only 6 percent while the incomes of the middle quintile rose by 21 percent. That’s a widening of the spread of incomes, but it’s not so drastic compared to the explosive gains at the very top. For the time being, we need to accept the possibility that the financial sector has learned how to game the American (and UK-based) system of state capitalism.

It’s no longer obvious that the system is stable at a macro level, and extreme income inequality at the top has been one result of that imbalance. Income inequality is a symptom, however, rather than a cause of the real problem. The root cause of income inequality, viewed in the most general terms, is extreme human ingenuity, albeit of a perverse kind. That is why it is so hard to control. Another root cause of growing inequality is that the modern world, by so limiting our downside risk, makes extreme risk-taking all too comfortable and easy. More risk-taking will mean more inequality, sooner or later, because winners always emerge from risk-taking.

Yet bankers who take bad risks (provided those risks are legal) simply do not end up with bad outcomes in any absolute sense. They still have millions in the bank, lots of human capital and plenty of social status. We’re not going to bring back torture, trial by ordeal or debtors’ prisons, nor should we. Yet the threat of impoverishment and disgrace no longer looms the way it once did, so we no longer can constrain excess financial risk-taking. It’s too soft and cushy a world.  

3. Lessons to be learned - Rodney Dickens at Strategic Risk Analysis is a close and independent observer of the New Zealand economy who often surprises with his views. Here in this "Rodney's Ravings" he looks at why 2010 so disappointed the forecasters.

What can we learn from the 2010 experience? I believe the most important lessons are:

1. The pivotal role the housing market plays in economic cycles.

2. The economic forecasters are particular bad at predicting housing market cycles.

3. A coal-face understanding of what is going on in the housing market and economy more generally is critical, especially when left-field events, like the property tax changes, have a major impact.

The number of existing house sales reported by REINZ has shown a hint of recovering in the last few months, with prospects for a housing market recovery discussed in our Housing Prospects reports. But the negative impact of the property tax changes and the earlier fall in the number of house sales is still to be fully reflected in falling house prices and falling residential building activity.

It has set in play negative economic multipliers.  

4. Couldn't help it - Size matters. Vietnam has devalued its dong by a record 7% in an effort to curb its trade deficit, Bloomberg reports.

“I’m quite surprised by the size as it’s very steep,” Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong said in a telephone interview. “It seems the authorities are trying to support exports and to support growth, rather than to fight inflation. That’s very surprising because inflation in Vietnam is a major problem.”

Moody’s cut Vietnam’s sovereign credit rating in December, citing the risk of a balance-of-payments crisis and a drop in foreign reserves as inflation reached a two-year high and the currency weakens. Consumer prices increased 12.2 percent last month from a year earlier, compared with 11.8 percent in December, according to data from the General Statistics Office.  

5. Phase out for Fannie and Freddie - The US Government has proposed phasing out Fannie Mae and Freddie Mac, the two government owned mortgage suppliers that helped fuel the US housing boom and then blew up spectacularly at enormous cost to US taxpayers.

But what happens when they aren't there to prop up what's left of the US housing market? Here's the WSJ report.

The Obama administration unveiled a proposal Friday for winding down mortgage giants Fannie Mae and Freddie Mac, spelling out three options for what could take their place and setting the stage for a debate over the nation's $10.6 trillion mortgage market.

The steps, outlined in a "white paper," are likely to mean higher borrowing costs and more-limited access to home loans for consumers. Treasury Secretary Timothy Geithner said establishing a new system could take five to seven years.  

6. Animal spirits stirring - US consumer confidence rose in February to an eight month high, Bloomberg reported. How long before US Treasury bond yields take off and inflationary pressures start stirring?

“At the end of the day, people spend on how they feel about their job prospects, and additional gains in confidence are likely to provide further support for spending,” said Millan Mulraine, senior U.S. strategist at TD Securities in New York.

Rising share prices may also be helping as the report showed confidence among affluent Americans, those making more than $75,000 a year, increased to the highest level since the last recession began in December 2007.

7. Do people not know how to use Google? - Some Australian investors have been burnt by the latest Mark Bryers scheme... Rule number one of investing. Google the name of the 'advisor' or company that wants to sell you something. Here's the story courtesy of Stuff.

An investor told the newspaper about an apartment investment Bryers organised for her and her partner which has left them without rental income from their unit, despite it being tenanted, and with no equity left in their home. He was acting as their "investment adviser". The couple got rent from their unit for only the first month but had since learned subsequent payments had been paid to the developer under an agreement it had with the unit's vendor, a Bryers associate.

The woman investor said they had about eight meetings with Bryers in the Brisbane offices of their accountant, who had recommended him. Bryers failed to reveal his Blue Chip failure, that he was a banned director and that the property deal he got them into was with parties associated with him and Northern Crest.

She said she was shocked to find out about Bryers after she had a gut feeling about him and did some research.  

8. Oh, that's alright then... - Brian Fallow from NZHerald picks up on some research by Craig Ebert at BNZ on household debt which shows New Zealanders have actually done a lot better with their saving recently.

Housing is now only 15% overvalued and households are now saving around 5% of their income, Ebert points out.

The unspoken thing is there is a decade of spending nearly NZ$1.10 for every NZ$1 earned that has to be paid back eventually. This could take 10-20 years to rectify, I reckon.

Here's Fallow at the Herald.

On average over the past five years it now has households spending $1.06 for every $1 of income compared with $1.13 on previous estimates. Those are net rates which include an allowance for depreciation of the housing stock. On a gross basis households managed a positive savings rate of 1.2 per cent in the March 2010 year. Ebert estimates it has improved to around 5 per cent in the March 2011 year and will maintain that next year.

"It's the strongest in nigh-on 20 years." Reserve Bank figures show mortgage debt flattening off over the past couple of years; in December total household mortgage debt actually fell. At the same time disposable incomes have been rising, though more from income tax cuts than increases in gross wages and salaries. Completing the rebalancing trifecta, with an improved savings rate and reduced debt-to-income load, is a less overvalued housing market.

The BNZ reckoned in early 2008 that house prices, then averaging about six times average disposable incomes, were overvalued by about 30 per cent. By now about half that overvaluation has been relieved, Ebert said, through declines in house prices and a "reasonable" increase in disposable incomes. "Good income growth over the next few years, coupled with flat to slightly declining nominal home prices, would probably go a long way to eliminating the housing valuation excesses altogether."  

9. Queenstown land prices halved - I get a lot of niggle for forecasting in early 2008 that property prices would fall 30%. The median fell as much as 10% and I revised my forecast to a 15% drop. My abiding memory from 2008 was Mark Hotchin telling me that a 30% fall would and could never happen...

Yet much of the stuff on the fringes is down much more than this. Land once owned by Hotchin's Hanover at Jacks Point is now being dumped at less than half its peak prices, the NZHerald reports.

This will no doubt have a ripple effect out on land prices elsewhere in Queenstown.

Instead of a current rateable valuation of $11 million, the owners might be lucky to get $5 million for the 20 scenic sites.

Companies in the Allied Farmers fold, which did the disastrous deal with Hanover and United, are selling 20 debt-burdened sections at the ambitious housing estate near Queenstown.

10. Totally irrelevant video - The All Blacks show off their video editing skills again. Hope they don't get too cocky. They won't be able to video edit their way to victory come World Cup Finals time...