Here's my Top 10 links from around the Internet at 5 pm in association with NZ Mint.
I welcome your additions in the comments below or via email tobernard.hickey@interest.co.nz.
I'll pop the extras into the comment stream. See all previous Top 10s here.
Dylan Ratigan's piece on bank leverage is good value today. Enjoy.
1. 'Disconnected from their own society' - Bloomberg reports American based companies are generating record profits but their tax payments are down substantially as they take advantage of various tax breaks and generate a greater share of their income offshore.
This begs some pretty big questions about how 'connected' these companies are to the societies they live in.
Multinational companies are experts are arbitraging their way to a low total tax rate by playing off against each other the governments in the various states and countries they are in.
Before long, they can end up like Google, which is massively wealthy and profitable but pays a 2.5% tax rate.
The becomes even more of a problem as companies migrate their services into the 'cloud', which may be an untaxed place in the ether or at best a server farm in some low taxed isle.
This just isn't sustainable.
Do the 1% really want to have to be told via riots this is not sustainable?
Here's Bloomberg with the gory detail:
Cash tax payments by non-financial companies in the Standard & Poor’s 500 Index (SPX) fell 13.2 percent to $222 billion in 2010 from 2007, according to data compiled by Bloomberg, while net income rose 12.5 percent to $612 billion. Cash taxes are the amount paid in taxes to all jurisdictions in a given year.
The pattern has implications for the U.S. government and for companies, said Jim Paulsen, chief investment strategist at Minneapolis-based Wells Capital Management. With domestic job growth still anemic, Congress may want to keep tax breaks such as accelerated depreciation, while companies may continue growth outside the U.S. because of strong demand, Paulsen said
2. Huge net capital outflows - Ambrose Evans Pritchard picks up on a huge exodus of funds from France's banking system.
French lenders lost €100bn (£86bn) in short-term deposits in September alone, mostly due to precautionary moves by US money market funds and Asian investors afraid of France's exposure to Italy. "There were huge net capital outflows," said Eric Dor from the IESEG School of Management in Lille.
The effects of this capital flight are surfacing on the Bank of France's books under the European Central Bank's so-called "Target2" scheme, an ECB payment network that lets funds move automatically where needed.
Liabilities jumped suddenly in late July, rising from €10bn to €98bn by September. Ireland's central bank owes €118bn, Spain's €108bn and Italy's €89bn.
An order from Gen Mohammed Ali Jaafari, the commander of the guards, raised the operational readiness status of the country’s forces, initiating preparations for potential external strikes and covert attacks.
Western intelligence officials said the Islamic Republic had initiated plans to disperse long-range missiles, high explosives, artillery and guards units to key defensive positions.
The order was given in response to the mounting international pressure over Iran’s nuclear programme. Preparation for a confrontation has gathered pace following last month’s report by the International Atomic Energy Agency (IAEA) in Vienna that produced evidence that Iran was actively working to produce nuclear weapons.
The Iranian leadership fears the country is being subjected to a carefully co-ordinated attack by Western intelligence and security agencies to destroy key elements of its nuclear infrastructure.
4. Leverage like dynamite - Dylan Ratigan argues bank leverage is just like an exposive strapped to the back of an economy.
Leverage matters on a systemic level because it is the mechanism that links your financial condition to that of your debtors and creditors. You might look solvent, or even wealthy, but if one of your debtors goes under can’t pay you back, suddenly you are broke too. And then your own creditors might also be broke, and on up the chain. If enough entities are borrowing and lending enough money to each other, the net effect is that their balance sheets effectively combine into one mega-balance sheet. Since you look wealthy, neither you nor regulators would even know how close to going bankrupt you might actually be.
This is why Federal Reserve Chairman Bernanke called the subprime crisis “contained” in 2007. He thought, like many officials, that there would be a mild economic disruption due to falling housing prices, but he had no idea that the entire financial system was on the verge of a meltdown. He simply didn’t know how interlinked subprime mortgages had become with global bank balance sheets.
5. Obama goes populist - Reuters reports Barack Obama has pledged to look after the middle class in his latest speech blasting the rich. Bit late mate. His chief of staff is a former executive of JP Morgan Chase and just a few days ago Congress gutted the toughest part of the Dodd Frank Act aimed at reducing the power and danger of America's Too Big To Fail banks. He's not expected to veto the act...
"This is the defining issue of our time. This is a make or break moment for the middle class," Obama told a cheering crowd in a high school gymnasium in Osawatomie, Kansas.
"At stake is whether this will be a country where working people can earn enough to raise a family, build a modest savings, own a home and secure their retirement," he said.
With the election just 11 months away, Obama's speech was part of a strategy to cast the Republicans as the party beholden to the rich and blame them for obstructing his efforts to boost the fragile economy and slash high unemployment, considered crucial to his re-election chances.
"Their philosophy is simple: we are better off when everyone is left to fend for themselves and play by their own rules. Well, I'm here to say they are wrong," he said.
6. Exile on Wall St - Chris Whalen says US bank analyst Mike Mayo's book seems a cracker. Hint Hint. Hoping my wife is reading this when compiling her Christmas Card list.
Mayo provides a lot of important detail about how the major Wall Street firms operate and, in particular, why the larger banks and their clients are more concerned about making money than creating value. Mike learned as did I that truth is not beauty on Wall Street, except in those few, generally smaller firms that have been able to preserve a culture of client service and quality. As Mike points out several times in Exile, many large cap mergers are done simply to cash out the managers.
“Two things are worth noting about these super-size banks,” Mayo writes. “First, much of their growth has come from mergers and acquisitions. They are not growing like Google, by creating a product and doing it better than anyone else. Instead they are just buying out their competitors… Secondly, many of these banks would likely not have grown to their current size without federal assistance in the past. In all the bank crises of previous decades, bank failures were thought to be too economically disruptive. But government bailouts – including the most recent round – didn’t resolve that problem. They merely delayed it, allowing banks to keep growing in size and scope, making the potential cataclysm next time that much bigger.”
7. How the Chinese swap their US paper for something concrete - Bloomberg reports that the China State Construction Company plans to buy a US construction company next year.
The builder has shortlisted two potential takeover targets, including one with annual sales of about $1 billion, Vice President Chen Guocai said yesterday at a conference in Hong Kong. He declined to elaborate on the companies or on how much the builder may spend on its first U.S. acquisition.
China State, which renovated the Alexander Hamilton Bridge in New York, also plans private-public partnerships in the U.S. over the next five years to help pare its reliance on domestic and emerging markets. The company wants to boost the proportion of overseas sales earned in the U.S. to 15 percent from 5 percent within five years, he said.
“We need to balance our overseas business,” he said. The so-called Arab Spring movements could disrupt sales in Africa and the Middle East, where the company has been “very successful,” he said.
8. Maybe not so good - Casey Research's Jeff Clark has looked at the value of various stock markets in gold price terms. It's not a good look. The chart below gives you an idea.
9. Has the Bundesbank run out of money - UCLA economist Aaron Tornell and Osnabreuck Professor Frank Westermann argue in this VoxEu piece that the pain in Europe may only just be starting because the Bundesbank has just about run out of money to lend to cash-strapped governments.
In the wake of the 2008 crisis, some national central banks, especially those in Greece, Ireland, Italy, Portugal, and Spain (the GIIPS), have dramatically increased their loans to financial institutions. To fund these loans, GIIPS central banks borrowed mainly – via the ECB – from other central banks, in particular the Bundesbank. In order to fund these loans, the Bundesbank sold its holdings of German assets. Asshown in Figure 1, between December 2007 and September 2011 the central banks of the GIIPS increased their loans to domestic financial institutions by nearly €300 billion. In contrast, the stock of gross German assets in the Bundesbank balance sheet fell sharply to its lowest level in history.
The ominous sign – which might set the stage for Act Two in the unfolding Eurozone drama – is the fact that the Bundesbank will soon exhaust the stock of securities that it can sell to fund further loans to the Eurosystem. At that point, the Bundesbank could sell its gold or increase the deposits it takes from the private sector. Most likely, however, the Bundesbank will face strong pressure from the German public against such action. Hence, it appears as if the Eurozone crisis is entering a second phase in which policymakers feel the need for new measures to prevent market turmoil.
10. Totally a video about how less stuff brings more happiness. I'm catching the thing that Amanda has.
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