Tuesday's Top 10 with NZ Mint: Baby-boomer selling to drive stocks lower for 10 more yrs; Greek bank run fear; Theresa Gattung's golden deal; Dilbert

Here's my Top 10 links from around the Internet at 11.30 am in association with NZ Mint.

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

I'll pop the extras into the comment stream. See all previous Top 10s here.

I like the last Tullet Prebon link on how consumerism and debt is a problem.

1. The baby boomer effect - The San Franscisco Federal Reserve has published a paper saying the retirement of the baby boomers could hold down stock markets for another two decades as they sell stocks to finance their retirement.

The Fed's researchers worked out that stock market valuations in price to earnings multiples have actually closely followed the cohort born from 1946 to 1964.

One of the reasons stock markets boomed in the 80s and 90s was younger earners were saving for their retirements in stocks.

Now as they get closer to retirement they are selling stocks and buying bonds, just as classic life cycle theory would suggest they do.

That has helped drive the 10 year US Treasury bond yield under 2%, despite a credit rating downgrade.

What does that mean? Lower interest rates. Very weak or lower stock markets.  The best preview is Japan, where this ageing has happened sooner than in the West. And the next one to worry about is China, where its one child policy and no migration has created a similar ageing problem within 20 years or so.

Historical data indicate a strong relationship between the age distribution of the U.S. population and stock market performance. A key demographic trend is the aging of the baby boom generation. As they reach retirement age, they are likely to shift from buying stocks to selling their equity holdings to finance retirement. Statistical models suggest that this shift could be a factor holding down equity valuations over the next two decades.

The model-generated path for real stock prices implied by demographic trends is quite bearish. Real stock prices follow a downward trend until 2021, cumulatively declining about 13% relative to 2010. The subsequent recovery is quite slow. Indeed, real stock prices are not expected to return to their 2010 level until 2027. On the brighter side, as the M/O ratio rebounds in 2025, we should expect a strong stock price recovery. By 2030, our calculations suggest that the real value of equities will be about 20% higher than in 2010.

2. America is crumbling - Bloomberg reports on what happened in the Californian city of Vallejo after its city council went bankrupt and it had to halve its local police force.

Prostitution took off.

And now this has led to the growth of neighbourhood watch groups to replace police.

Here's Bloomberg (HT Troy via email):

Prostitution became a growth industry in Vallejo as the San Francisco Bay city slashed its payroll, cutting police by a third, to 90 from 134. The largest municipal bankruptcy in California since Orange County in 1994 has forced law enforcement to focus on violent crime at the cost of so-called “quality-of-life” issues, residents and officials said.

“When you have half the number of people, you can only do half the amount of work,” Robert Nichelini, Vallejo’s police chief, said in an Aug. 15 telephone interview. “Where it’s taken a toll is the lower-priority crimes, which have had to take a back seat.”

The sharp reduction in city services has prompted residents to fill the void, particularly in law enforcement.

3. Greek bank run avoided - Just. Zerohedge points to a paywalled FT article on how Greece only just avoided a bank run recently.

 From the FT: "Greece’s four largest banks agreed to take up a €50m convertible bond to help recapitalise Proton Bank, a small lender, the central bank announced this weekend, in what is being seen as an attempt to avert a run on the country’s fragile banking system..

.“In this environment, it was essential to prevent Proton from collapsing and creating a mood of fear with unpredictable consequences,” said one banker, explaining the rationale for the take-up of the Proton bond." In summary, Greece was lucky... this time around, they had enough cash to save the smallish lender. The next time around they will not be so lucky.

4. Good to see the South Australians push back - SkyCity has asked for extra gambling licenses here in exchange for a new convention centre. It also tried the same thing in South Australia.

It's good to see the Australians push back. There's even a reference to a frank exchange of views. Would our Prime Minister do that?

Here's Nick Krause at Stuff:

SkyCity Entertainment Group's $300 million development plans in Adelaide are in doubt after South Australia's state treasurer said the government would not negotiate on a review of gambling taxes in exchange for the company's investment.

The casino operator has offered to commit A$250 million ($312m) to support redeveloping Adelaide's Riverbank Precinct, part of a huge project involving state investment to transform Adelaide Oval into a 50,000 capacity multi-purpose stadium and upgrade the nearby Adelaide Convention Centre. In exchange, SkyCity wanted a review of the South Australian government's tax rate on gaming machines of 43.5 per cent, the highest in Australia. The group said the average in other states was 28 per cent.

The proposal is similar to a deal announced in June in which SkyCity would fund a new $350m international convention centre in central Auckland in exchange for the government changing gambling regulations. In an interview with the Australian Broadcasting Corporation, South Australian treasurer Jack Snelling said SkyCity would not be offered any special deals in return for its support.

''It's fair to say there was a frank exchange of views,'' he told ABC. ''As far as I'm concerned they now understand that there cannot and will not be any connection between any changes to their regulatory arrangements governing the casino and their investment on the Riverbank precinct.''

5. 'You've been warned' -  The Age's Matt Wade reports a couple of Chinese economists have warned the Reserve Bank of Australia at a private briefing there is a risk of another Asian Financial crisis in the next 20 years and that China would not be able to stimulate its way out of trouble again in the same way it did in 2008.

Distinguished Peking University economists, Yiping Huang and Bijun Wang, presented a paper at the bank's annual closed-door conference that assessed Asia's economic performance over the past decade and looked ahead to the prospects for the next 10 years.

The good news is they expect Asia's economic ascendancy to continue. But they warned the next 10 years or so could be bumpier than the past 10. "It is quite possible that Asia or China will experience a new financial crisis in the coming decade or two," their paper concluded.

Huang and Wang say the GFC, which hit a decade after the AFC, showed that Asian economies, including China, had made "limited progresses" in limiting financial and macro-economic risks. "Chinese policymakers used fiscal and monetary policies to boost economic growth during the GFC," they said. "But these policies have backfired in terms of high inflation, high local government debts and possibly large non-performing loans. It is almost impossible for the Chinese government to repeat what it did during the GFC."

6. 100,000 job losses - Merill Lynch has forecast 100,000 job losses in Australia as it struggles to deal with the high currency and weak household spending. Merill now sees the RBA cutting its cash rate by November at the latest. Yesterday's 1,000 job losses by Blue Scope are just the start. HT Alaninteractive via Twitter.

Steve Keen is looking more and more right by the day.

Here's the Australian:

On Merrill's numbers, about 50,000 job losses are consistent with another 0.5 per cent jump in the unemployment rate, which Mr Rocks said "would make an irresistible case for a rate cut".

"Anecdotes suggest that official employment data is lagging a material change in labour market conditions," said Mr Rocks. "We have tallied 7000 announced job losses since June, which are unlikely to be in the official numbers yet. This would be a subset of total losses since not all layoffs are announced.

"The RBA would ease rates once it becomes aware of this new trend in the labour market - we expect this by its November meeting but financial dislocation could force a more immediate response."

Bluescope today said it would cut 1000 jobs due to the high Australian dollar and soaring materials costs, as it became the latest in a string of companies to announce job cuts in recent weeks, including Coca-Cola Amatil, Westpac, Premier Investments and Ten Network.

7. Gattung a canny inveswtor - The Australian reports Theresa Gattung sold NZ$1 million worth of Telecom shares when she left as CEO and bought NZ$1 million worth of gold. It's looking good now.

The irony here is she was the CEO of the NZX 50's most prominent company. And her personal choice was not to reinvest in the stock market...

It makes you wonder about stocks.

The gold price has risen 140 per cent, or more than 25 per cent a year, over the past four years amid the market mayhem of the global crisis and now the more recent return of wrenching volatility to international sharemarkets.

"It was basically a defensive strategy that has turned to gold," Gattung says with a smile, although she is quick to add that there was nothing scientific about her investment strategy. Luck played its part.

"I am a conservative investor. I look to property, cash and precious metals. I've certainly missed the peaks of the market, but I've also missed the troughs."

8. The amazing Zerohedge - I often link to Tyler Durden from Zerohedge. We don't know exactly who Tyler is, or whether it's a collection of people. But Zerohedge is often provocative and breaks news, courtesy of connections deep inside the markets and a collapsetarian view of the world.

Now the Globe and Mail has taken a closer look at Zerohedge after a post about the stability of Canada's banks caused a stir. HT Amanda.

Here's the Globe and Mail citing Zerohedge's extraordinary disclaimer. Fair enough.

Reading what Zero Hedge calls its non-policy on conflict of interest, you should assume that's what they are doing. They say as much. Here's alink to the policy, but here's the upshot, in Zero Hedge's inimitable style:

"So how do we plan to handle conflicts? We don't. You should assume that at all times we are so totally just talking our book it would shock and awe you like the unexpected, early-morning arrival of a cluster of BGM-109C Tomahawks (were you a believer in the importance of "optics" that is)."

And if that's not clear enough, Zero Hedge goes on to say:

"The reality is, critical readers should read analytic posts and the rest of Zero Hedge with the blanket assumption that the author is totally 'conflicted.' (Phrased more logically, that the author stands to benefit from being right- imagine that)."

9. Refreshing from a stock broker - The Guardian reports a broker saying the London riots are a symptom of debt-fueled consumerism gone wrong.

The recent riots in London and other big cities were the product of an "out-of-control consumerist ethos" which will have profound impacts for the UK economy, a leading City broker has said.

The report by the global head of research at Tullett Prebon, Tim Morgan, is part of a series in which the brokerage analyses bigger issues for the UK. It details recommendations to resolve what it sees as a political and economic malaise: new role models, policies to encourage savings, the channelling of private investment into creating rather than inflating assets, and greater public investment.

It warns: "We conclude that the rioting reflects a deeply flawed economic and social ethos… recklessly borrowed consumption, the breakdown both of top-end accountability and of trust in institutions, and severe failings by governments over more than two decades."

The note pinpoints the philosophy behind the riots as consumerism.

10. Totally Jon Stewart on a probe into ratings agencies. "Revenge is a dish best served with a great deal of paperwork."