Tuesday's Top 10 with NZ Mint: He's Rich Ricci; Oil traders bet on Saudi 'Day of Rage'; Bond market rout 'just like in '94'; The Beijing consensus; Dilbert

Here's my Top 10 links from around the Internet at 10 past 3 pm in association with NZ Mint.

I welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz.

1. Thanks Gail - The Australian reports Westpac CEO Gail Kelly reckons funding costs will fall next year and in 2013, which means the banks could pass on rate cuts independently of the Reserve Bank of Australia.

Hmmm.

Maybe Gail has a more positive view of the world than many.

If we get through the next two years without some sort of financial market meltdown caused by one of the following -- Greek debt crisis, Irish debt crisis, Mideast revolution crisis, North Korean crisis, US sovereign debt crisis, Chinese banking crisis -- then we will have done very well.

Here's hoping.

Here's Gail in cheery chops mode:

"I feel we've stared into all of the headwinds of what's been a very difficult environment, through the global financial crisis of much enhanced difficulty of funding costs, and all of the stresses and strains we've just spoken about," she said.

"There's no question towards the end of 2012 that situation will plateau and our average funding costs will start to plateau because marginal funding costs will be coming down, and into 2013 and '14, we can see it today the amounts of money we raised at the height of the crisis in 2009 and '10 starts to mature and hopefully we'll be able to replace that at a much cheaper level."

She says the bank intends to pass that fall in costs onto customers as soon as it can in the form of interest rate cuts. "There's no question we'll be passing that benefit onto customers when that happens," she said.  

2. I am like my name - Rich Ricci. You couldn't dream up a better name for an investment banker than Rich Ricci. Barclays has just paid out 110 million quid to its top 5 managers, including 40 million quid for Rich Ricci, pictured below in full Gekko mode.

Girls, do you think he's worth it?

He seems to think he is by the look of this picture.

Jill Treanor at the Guardian has the story.

The two top earners received more than the Barclays chief executive, Bob Diamond, who took the helm in January after more than a decade building the investment banking arm, Barclays Capital.

The American-born banker, who has called for the period of remorse for banks to end, received a potential £27m, including a £6.5m bonus for 2010, as well as a £2.25m award of shares which could pay out in the future, and share deals from the past five years that paid out £14m and one from 2007 that paid out £5m.

Lord Oakeshott, the Liberal Democrat peer who resigned as the party's Treasury spokesman in the Lords over Project Merlin, said: "The capitalist model has clearly broken down when shareholders get so little and the managers grab so much."

By the end of last year, £100 invested in Barclays shares four years earlier would have generated a loss of £47, while the FTSE 100 index of major shares gained £26 during the same period.  

4. The Austerity debate - John van Reenen writes here at VoxEu about Britain's harsh austerity plan and concludes it's the wrong way to go.

In my opinion, the accelerated austerity programme is fundamentally a mistake because it is grounded in an overly pessimistic view of the UK’s potential output. Just as there was exaggerated optimism over the improvements of the supply-side engendered by financial markets in the pre-crisis period, now there is excessive pessimism with some prophets of doom suggesting the UK has permanently lost 7%-10% of its capacity.

This ignores real improvements in relative UK performance over the past decade and a half. Unfortunately, this irrational anti-exuberance risks becoming a self-fulfilling prophecy. Extreme austerity leads to premature capital scrapping which in turn fulfils the expectation of lower growth. But don’t we need this extreme austerity to reassure bond markets?

We are in the realms of psychology, but I believe that the March 2010 budget contained a credible deficit reduction programme. Britain’s debt is not enormous by historical standards (79% vs. a three century average of 118%), it has a long maturity and we have never had a formal default. The UK is not Greece. The advantage of frontloading the pain is more political than economic – voters’ memories are short, so in 4 years’ time the pain will hopefully be forgotten.  

5. Watch out for Portugal - Marc Chandler at CreditWritedowns looks at how soon before Portugal will ask for a bailout. About two weeks seems to be the consensus.

The next big auction of Portugese government debt is Wednesday night.

More here.

Meanwhile, Portuguese banks continue to borrow around 25% of GDP from the ECB.

In fact, February was the third consecutive month that Portuguese bank borrowing from the ECB increased. February borrowings were 41.1 bln euros, up slightly from January. The peak was last August just above 49 bln euros. Ironically, nearly all of Portugal’s large banks have reportedly claimed to have been reducing their reliance on the ECB.

Portugal, like Ireland and Greece, will deny intentions to ask for assistance until the moment they do ask. One key difference for Portugal is that it has seen the failure of the aid programs to really address the crisis and bring down interest rates, or even stabilize them. Our best guess is that Portugal will receive an aid package as part of the "comprehensive plan" to be finalized at the March 24-25 European Summit.  

6. Day of rage - Apparently protestors in Saudi Arabia are calling for a 'Day of Rage' on March 11 and another one on March 20. Oil traders are beginning to worry about US$200/bbl oil, Bloomberg points out in this chart of the day.

The CHART OF THE DAY shows open interest, or the number of outstanding contracts, for “call” options to buy New York crude for June delivery at $200 a barrel. The number has escalated, along with crude futures, to the highest since the options started trading in July 2009 amid worsening civil unrest in Libya and rare demonstrations in Saudi Arabia.

“The price of oil is going to go up, whether you like it to or don’t,” said Juerg Kiener, chief investment officer at Swiss Asia Capital Ltd. in Singapore.

“If Saudi Arabia fails, then I say you have a fire in the house. They gave out $30 billion of money so maybe they’ll buy time. But I don’t see the problems disappearing.”

7. 'Bonds get killed' - JP Morgan Chase Chief Economist Bruce Kasman is worried that emerging market central banks have kept their interest rates too low for too long.

Bloomberg reports he reckons they will have to hike at the same time as the Federal Reserve, creating a synchronised perfect storm of rising interest rates in bond markets reminiscent of the bond market rout of 1994.

This piece is well worth a read if you think about the world's biggest market -- US Treasuries.

His fear is that simultaneous shifts will lead financial markets to echo 1994, when investors first doubted the Fed’s inflation-fighting mettle, only for Treasuries to slide more than 3 percent as policy makers almost doubled the federal funds rate.

“There is a recipe for disruptive dynamics in markets if policy adjustments have to gather steam in a synchronized way,” said New York-based Kasman, a former official at the Federal Reserve Bank of New York who now oversees economic research at the second-largest U.S. bank by assets.

Such a scenario could develop in 12 to 36 months and would “take a toll on risk assets. Bonds get killed,” he said.  

8. The end of the Washington Consensus - Kevin Gallagher at The Guardian writes that the Washington Consensus may be over and is being replaced by the Beijing consensus.

A fascinating insight about global trade and economic politics.

Columbia's decision to team up with China to create a 'dry' new version of the Panama canal across central America has shocked America, which was trying to do a free trade deal with Columbia.

Before China "gets" Colombia, there is now a rallying cry that says the US must pass the US-Colombia Free Trade deal – which would make Colombia deregulate its financial services industry, scrap its ability to design innovative policies for development, and open its borders to subsidised farm products from the United States. According to a study by the UN, the agreement will actually make Colombia worse-off by up to $75m, or 0.1% of its GDP.

Ironically, the US's renegade Congress failed to renew trade preferences last week, under which the majority of Colombia's exports enter tariff-free without the conditional terms of US trade deals.

Meanwhile, the Financial Times reports that China has lent over $110bn to developing countries over the past two years, more than the World Bank has made in three years. Relative to the World Bank, these loans come with far fewer "conditionalities" and are going to massive infrastructure projects across Africa and in places like Argentina, Venezuela and, perhaps now, even Colombia.  

9. Something for us to copy? - The Australian government has signalled a fresh crackdown on the banking industry there, including plans to scrap some fees on credit cards and banning banks from offering credit limit upgrades, The Australian reports.

The proposals, which will cost the industry millions of dollars in fee income each year, will also force banks to allocate card repayments to high-interest debts first and make it mandatory for credit card applications to outline a summary of account features.

The banks will also have to provide mortgage customers a key fact sheet that can be used to compare home loans with rival banks' products.  

10. Totally relevant video on cheap flights - I'm still grumpy about AirNZ automatically adding on insurance unless you untick it on domestic flights.