Tuesday's Top 10 with NZ Mint: FT wonders if it's time to short NZ?; China's grumpy middle class; China's contracting workforce; Joseph Stiglitz on inequality; Nouriel Roubini on the 2013 outlook; Dilbert

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

As always, we welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz.

See all previous Top 10s here.

Happy 2013 to all. My must read is #3 on the increasing middle class protests in China over smog and press freedoms. Something is brewing up there.

1. Time to short New Zealand? - FTAlphaville has picked up on Demographia's survey showing the worsening of housing affordability in New Zealand and how we're now less affordable than Australia.

FTAlphaville, which is one of the best financial blogs around, rightly picked up on Bill English's decision to write the foreword to the survey, which mused openly about the risk of another mid-2000s housing boom.

English is rightly on the warpath on this.

He has suggested the government could take land availability decisions off councils.

That would be a drastic move.

But something has to give. The big problem is Auckland.

What’s surprising here is the performance of New Zealand, which is now more unaffordable than Australia. That’s bound to stir up some trans-Tasman rivalry. Although at a more granular level, Australia can still boost some of the most expensive places in the world to live.

Time to short New Zealand then?

2. Inequality and slow growth - Nobel prize-winning economist Joseph Stiglitz has written a useful summary at the New York Times of the argument that increased income inequality is slowing economic growth.

Instead of pouring money into the banks, we could have tried rebuilding the economy from the bottom up. We could have enabled homeowners who were “underwater” — those who owe more money on their homes than the homes are worth — to get a fresh start, by writing down principal, in exchange for giving banks a share of the gains if and when home prices recovered.

We could have recognized that when young people are jobless, their skills atrophy. We could have made sure that every young person was either in school, in a training program or on a job. Instead, we let youth unemployment rise to twice the national average. The children of the rich can stay in college or attend graduate school, without accumulating enormous debt, or take unpaid internships to beef up their résumés. Not so for those in the middle and bottom. We are sowing the seeds of ever more inequality in the coming years.

3. China's increasingly grumpy middle class - The New York Times' Edward Wong writes here about growing calls in China for more transparency.

Since my last Top 10 we've seen an anti-censorship protest in Southern China and massive online outrage over stifling smog in Beijing.

A widening discontent was evident this month in the anticensorship street protests in the southern city of Guangzhou and in the online outrage that exploded over an extraordinary surge in air pollution in the north. Anger has also reached a boil over fears concerning hazardous tap water and over a factory spill of 39 tons of a toxic chemical in Shanxi Province that has led to panic in nearby cities.

For years, many China observers have asserted that the party's authoritarian system endures because ordinary Chinese buy into a grand bargain: the party guarantees economic growth, and in exchange the people do not question the way the party rules. Now, many whose lives improved under the boom are reneging on their end of the deal, and in ways more vocal than ever before. Their ranks include billionaires and students, movie stars and homemakers.

Few are advocating an overthrow of the party. Many just want the system to provide a more secure life. But in doing so, they are demanding something that challenges the very nature of the party-controlled state: transparency.

4. Show us the money - This story has flown under the radar in the last couple of weeks, but is shocking just the same. Caterpillar had to write off almost the entire value of a construction equipment company in China that it bought recently because of fraud.

At the time of the Caterpillar purchase, ERA Mining was listed in the Growth Enterprise Market (GEM) of the Hong Kong stock exchange, which is "designed to accommodate companies to which a higher investment risk may be attached," according to the offering circular filed by Caterpillar last year in Hong Kong.

The company was previously known as ERA Holdings Global Ltd. and provided "corporate secretarial services" before being acquired by Siwei in September 2010 through a reverse takeover.

Caterpillar's write-off could revive concerns over accounting scandals and corporate governance issues of Chinese companies voiced by investors including Muddy Waters founder Carson Block.

Reverse takeovers have been of particular concern, since most of the recent accounting scandals in the United States have come from small Chinese companies who went public via a reverse takeover, including China MediaExpress Holdings Inc. A Hong Kong arbitration panel on Wednesday ruled China MediaExpress was a "fraudulent enterprise."

5. Where is the power price deflation? - Meridian Energy has decided to mothball a project on the Waitaki because of flat power demand. I still can't work out why power prices for consumer have risen 5% in the last year while demand was flat and new supply was added from geothermal stations in the central North Island and new wind farms opened. (This replaces the Dubai sewage story, which is now out of date.)

6. The problem with British bankers - The Mail on Sunday has uncovered a dossier detailing the short termist, profit gouging approach of Barclays bank. One of the executives has resigned after trying to cover up (by shredding) the dossier.

The Mail on Sunday’s revelations come at an acutely embarrassing time for Barclays, as bosses try to regain public trust after a series of deeply damaging scandals.

The report which Mr Tinney suppressed paints a devastating picture of incompetence and arrogance at the bank, showing that executives:

  • Pursued a ‘revenue at all costs’ strategy.
  • Fostered a culture of fear and intimidation.
  • Were ‘actively hostile’ to the idea of compliance with banking rules.
  • Presided over a ‘broken culture’ where problems were ignored or buried.
  • Allowed the business to spin ‘out of control’.

But Mr Tinney, 46, shredded the only hard copy and ensured that its contents were not entered into the Barclays computer system.

7. China's shrinking workforce - China's working age population has started falling, in part due to China's falling birth rate and its one child policy.

The danger for New Zealand comes as China's economic growth rate slows under the weight of this demographic slowdown and it is forced by financial constraints to shift its growth model from investment heavy to consumption heavy.

Here's Kate McKenzie at FTAlphaville:

The question is, as ever, how long China’s economy can carry on with its investment-heavy, consumption-light, and heavily leveraged method of growth. And, how smoothly it can transition to whatever lies beyond that. We would not want to take bets on a time frame. Fitch Ratings however says it thinks China might be reaching some kind of limit:

The investment-led growth model is running into tightening constraints. The first constraint arises from the ability of the financial system to fund more capital spending in light of the existing scale of leverage and emergent pressure on bank liquidity. The second constraint is that still-higher investment, without a commensurate rise in the already-stratospheric savings rate, would see China running the risk of incurring a structural current account deficit.

As for Fitch’s first concern — the ability of the financial system — there may be answers to that in the ever-developing world of shadow finance.

8. 'Another year of mediocre growth' - This is the forecast from 'Dr Doom' Nouriel Roubini at Project Syndicate on the outlook for 2013. He's not postive... Well worth a read.

Painful deleveraging – less spending and more saving to reduce debt and leverage – remains ongoing in most advanced economies, which implies slow economic growth. But fiscal austerity will envelop most advanced economies this year, rather than just the eurozone periphery and the United Kingdom. Indeed, austerity is spreading to the core of the eurozone, the United States, and other advanced economies (with the exception of Japan).

Given synchronized fiscal retrenchment in most advanced economies, another year of mediocre growth cocould give way to outright contraction in some countries.

9. The currency wars of 2013 - Alan Kohler at  BusinessSpectator writes about Japan's move over the Christmas/New Year break to launch all out money printing and government spending in the latest round of the currency wars.

Ambrose Evans-Pritchard of London’s Daily Telegraph points out that Japan’s new economic revolution is a “near copy” of its experiment in the 1930s under the then finance minister Takahashi Korekiyo. He launched a fiscal 'New Deal' before Franklin Roosevelt even became president, compelled the BoJ to monetise debt and devalued the yen by 60 per cent against the US dollar and 40 per cent on the trade weighted index.

Japan's textile, machinery, and chemical exports swept Asia, sparking a global trade war as Britain and India responded.

Last week the deputy chairman of Russia’s central bank, Alexei Ulyukayev, became the first to name the problem, saying: "We're on a threshold of a very serious, confrontational actions in the sphere that is known ... as currency wars.” He went on: "The recent decision by the new government of Japan regarding very protectionist monetary policy ... this is a course towards a sharp depreciation of the yen. Other colleagues from respected central banks and governments already pursue this policy. This is not a path towards global coordination but a separation."

10. Totally Clarke and Dawe - A resident from the North Pole has applied for Australian citizenship, it seems.

(Updated #5 to remove out of date Dubai sewage story).

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Certainly not time to short NZ res property.
'this is the start of another housing price boom, the Govt and I will do nothing about it'
Last housing boom early 2000's there was so much positive sentiment and momentum behind  the market that it took years of rates rises to cool it, even then only the GFC really derailed it.
This time the boom is acknowledged, backed and guaranteed by the finance minister.

Good on you, SK. Keep talking up that lame horse. Hopefully there are some suckers left out there who want to gamble.

Govt Prints money (no greedy bank involvement).
Builds 100,000 houses with some of this money (employing people all over NZ); depressing the value of all houses (or at least slowing the growth).
Gives First Time Buyers 1% loans to buy the houses out of this money.

@tony - If the Government prints money could you tell me just how you expect inflation to be controlled? Other countries who are printing are in reality exporting their inflation.
If you build your 100,000 houses this will not depress the value of houses. The underlying issue causing house prices to be expensive is the Councils control over land release which is  causing supply constraint issues. Your 100,000 houses (assume you are referring to Labours proposal) will be valued at the market price of the day so these policies will do nothing to depress house prices. 
The other issues causing house prices to escalate are other Council controls, Compliance issues, lack of competition in building materials, the LBP scheme, Earthquakes and Leaky homes etc.
As we can't manage mother nature take the earthquakes out of the equation. All the other issues are man-made ones and the effects are high house prices.

>> @tony - If the Government prints money could you tell me just how you expect inflation to be controlled? Other countries who are printing are in reality exporting their inflation.
Is there an inflation problem at the moment; what will this limited intervention add?
Don't we want a bit of inflation to inflate away some debt anyhow.
>> are in reality exporting their inflation
It's a global war! If we don't print soon we won't have any manufacturing left in the "race to the bottom"!
>> If you build your 100,000 houses this will not depress the value of houses. The underlying issue causing house prices to be expensive is the Councils control over land release which is  causing supply constraint issues. Your 100,000 houses (assume you are referring to Labours proposal) will be valued at the market price of the day so these policies will do nothing to depress house prices. 
Err. supply and demand, if you build a lot more houses then... well; ain't it obvious...
Also, why can't you build new towns (like Pegasus) and compulsory purchase the land (CERA do!). It's also not all about Akl, Christchurc and Wellington you know! In fact outlying towns to Christchurch have plenty of land to build on (like Rolleston with the largest Industrial Park in NZ! so there are Jobs there too)
>>> The other issues causing house prices to escelate are other Council controls, Compliance issues, lack of competition in building materials, the LBP scheme, Earthquakes and Leaky homes etc.
As we can't manage mother nature take the earthquakes out of the equation. All the other issues are man-made ones and the effects are high house prices.
These are all realted to Supply and Demand and poor "minimum standards" (notably poor insulation standards causing cold/damp houses and ill kids).
Personally, I believe the Kiwi houses are generally shoddy so I have built two of my own in the last few year: way above the "minimum standard" with the help of a great builder for a great price/sqm!
If you are ****** enough to get someone like Fletchers or a "big" building firm to do it; then you are just asking for huge creaming off the top. Get involved and enjoy the journey!

Max Keiser on currency wars

rc - thanks for link haven't had time to watch it all. My understanding is that Basel III allows for Gold to be used 100% as backing as at 1 January 2013. Central Banks apparently have all been told that they must hold and increase their physical Gold as well.  

#4 - thanks BH. Good that someones' tracking Caterpillar.

For me , two stories on the macro-economic front that will impact us .... the Currency wars , and Nouriel Roubini on deleveraging .
The responses by other manufacturing and mercantalist economies to the Currency War is going to be telling , and I wonder what our authorities will do, if anything .
Secondly , I suspect Roubini is right.
Deleveraging is not rocket science ,its both logical and sensible  and  its something we have known about for thousands of years .
We are midway through the Seven Lean Years referred to in scripture , and as a Jewish person Roubini  will understand that we have some way to go yet.
 Layer this with his encyclopeadic understanding of economics and he is likely to be  on the money

Interesting to ponder China's future Demographic problems.  Here is a link that sets it out well.
We think that we have problems!  As in other parts of the world, the demographic problems in the future are the flip side of the current favorable conditions. It could well be worse than Japan and they will end up trying to repatriate people back to China looking at the figures.  That will be a relief; pity we have to wait so long before it bites.

It has been a dangerous time to disagree with Nouriel Roubini in the last few years.
But as this link shows the so called "Austerity" in the UK that is spoken of does not appear to exist.  British budget statistics show spending (excluding interest payments) was up 9% year on year from October 2011 to October 2012.
For the entire Jan-Oct 2012 period spending increased by 3.9%.  Not only is this not a cut/decrease it is also above the rate of inflation or GDP growth.

I fear Mr Stiglitz has missed the importance of establishing cause in the thrust of his article.
Most of his article is taken up with a spirited defence of a fact few dispute.  Namely that inequality has steadily increased in the USA.  But this is a well worn track and I find it hard to few with an opposing view, in America at least.
What he does not establish is inequality as a cause rather than an effect.  This is important for the same reason as diagnosing disease correctly is important. The patient may be running a temperature that of itself causes other flow on symptoms. But bringing down a temperature won't save the patient if the root cause is cancer or other serious disease.

"UK Prime Minister David Cameron has said that Islamist extremists in North Africa pose a "large and existential threat" - a comment he made following the siege of a gas facility in Algeria, where dozens of people, nearly all of them foreigners, were killed. " BBC
How hard can it be to spot a vehicle in the Sahara...or the tracks left behind....or the heat signature of movement at night...Somebody asleep at the wheel me thinks.

Yeah, Yeah.
Time for the English, Wheeler consortium (clique or whatever) to Follow,Follow.
US,UK and now Japan. What examples, they must know something
Watch Japan, boys then Print, Print.
Pay back that recently borrowed cash (was that $300m a week) with newly printed and excellently regarded NZ dollars.
You know its right.