Top 10 at 10: Negative equity forever (almost); Bond vigilantes are back; Dilbert; Gummy Bears

Here are my Top 10 links from around the Internet at 10 past 1. I welcome your additions and comments below or please send suggestions for Monday’s Top 10 at 10 to bernard.hickey@interest.co.nz Negative equity - Here's some research by US firm CoreLogic on when US homeowners might return to positive equity in their houses. Some houses won't be worth anything to the owners until 2020.

For the typical underwater borrower in the U.S. it will take until late 2015 or early 2016 for negative equity to disappear. In certain markets, it will take another five to 10 years or even longer to return to positive equity. For example, Detroit is not projected to recover even by 2020, because of its depressed economy.

Rolfe Winkler from Reuters has the story.

2. 'A world of pain' - Felix Salmon at Reuters points out that Ernst & Young faces a world of pain over how it handled/missed/glossed over the Repo 105 deals that made Lehman's accounts into huge lies. EY have just written a letter defending itself that just makes things worse.

It’s pretty obvious why the letter isn’t being sent to the media outlets in question: it’s hilariously disingenuous, and anybody reading it side-by-side with, say, this piece at ZeroHedge will find it simply laughable. The letter continues in this vein for two pages, denying allegations which haven’t been made while stepping gently around the ones which have. Even if you haven’t seen things like the ZH report, the tone of the letter is decidedly weird. If you have seen things like the ZH report, the letter will only serve to make your opinion of E&Y even worse. If I was on the audit committee which received this letter, I would certainly be shopping my account right now. And if this is the best defense that E&Y can muster, they really are in for a world of Lehman-related pain.

3. The big European mess - Ambrose Evans Pritchard opines on the apparent 'deal' done overnight for a joint IMF/EU bailout of Greece. The unanswered questions outnumber the answered ones by a ratio of 8.65 to 1...just kidding. It's a mess, as The Telegraph's man in Europe points out here:

A host of questions remain unanswered, not least whether the IMF's board will disburse funds without retaining control over austerity plans, or whether it will accept EU conditions at all. The IMF usually imposes devaluations and steers monetary policy. When public debt is already too high – as it may be in Greece at 125pc of GDP this year – the Fund can engineer a controlled default. Jean-Claude Trichet, head of the European Central Bank, said it was a "very, very bad idea" to let the IMF into the eurozone, a foretaste of how hard it will be for the Fund to work with EU bodies. The euro fell below $1.33 against the dollar on Mr Trichet's comments. Investors have learned in any case to treat EU summit headlines with a pinch of salt. A string of rescues over the past six weeks proved little more than bluff.

Evans-Pritchard also points to an ominous new development. Now China is unhappy with Europe as well as the United States. HT Andrew via email

"Greece is only one case, but it's only a tip of the iceberg," said Zhu Min, the vice-governor of China's central bank. "The main concern today obviously is Spain and Italy." Zhu Min said it is unlikely that Greece will default, but real concern is the deeper structural problem with the way the euro is run. "We don't see decisive action that tells the market, 'We can solve it, we can close it,' so the market is very volatile," he said. Beijing has repeatedly questioned the safety of dollar assets. This is the first time it has questioned the euro in such terms. "China is really the big story of the day for Europe," said Simon Derrick, currency chief at the Bank of New York Mellon. "Nobody at China's central bank gives a speech like this without clearance from the highest level. They are saying, 'We have a lot of money invested in your debt and we think it is time for you to get your house in order'," he said.

4. Some thesis - The New York Times' DealJournal has pointed to some comments by Michael Lewis (The Big Short) about a thesis produced by a 22 year old Harvard student called: "The Story of the CDO Market Meltdown: An Empirical Analysis." HT Troy via email.

“It was a classic example of the innocent going to Wall Street and asking the right questions,” said Mr. Lewis, who in his 20s wrote “Liar’s Poker,” considered a defining book on Wall Street culture. “Her thesis shows there were ways to discover things that everyone should have wanted to know. That it took a 22-year-old Harvard student to find them out is just outrageous.”

5. De-leveraging pressure - The Federal Reserve's Kansas City President Thomas Hoenig, the black sheep in the family, has helpfully pointed out in this speech that the 'Too Big to Fail' (TBTF) banks would need to raise US$210 billion in fresh capital to have the same capital strength as smaller banks if they played by the same rules.

TBTF status provides a direct cost advantage to these firms. Without the fear of loss to creditors, these large firms can use higher leverage, which allows them to fund more assets with lower cost debt instead of more expensive equity. As of year-end, the top 20 banking firms held Tier 1 common equity equal to only 5.1 percent of their assets. In contrast, other banking institutions held 6.7 percent equity. If the top 20 firms held the same equity capital levels as other smaller banking institutions, they would require $210 billion in new equity or reduced assets of over $3 trillion, or some combination of both.

6. The bond vigilantes are back - Long term US bond yields have risen sharply this week as investors get nervous about heavy government spending and the states' ability to repay the funds. The US Treasury dumped a further US$118 billion of new bonds into the market this week and investors struggled to absorb it. Here's the LA Times version.

On a day of global market upheaval, the 10-year Treasury note yield -- a benchmark for mortgage rates -- surged to a two-month high of 3.82% from 3.67% on Tuesday, the largest one-day rise since August. The government has been on a record borrowing binge this year to finance its ballooning deficit. The market had been absorbing that debt with relative ease in recent months, but on Wednesday investors suddenly balked. "The amount of supply is just kind of overwhelming," said Tom Tucci, head of government bond trading at RBC Capital Markets in New York.

7. Another China crash warning - The list of heavy hitting economists and global economy watchers who say China is gearing up for a crash is getting longer. Now famed economist William Buiter at Citigroup has warned of a crash oop north, Bloomberg reports. Alan Bollard remains confident that China can keep the miracle going, which would keep the Australian boom going, which would keep us going. Because, as every bond trader with an eye on this part of the world says: "New Zealand is a suburb of Australia which is a province of China." Let's see.

The process will begin in the residential property market before spreading to commercial real estate and ultimately to stocks, the Citigroup economists led by former Bank of England policy maker Willem Buiter said in a report. It may take as long as two years for the asset bubble to form and at least three years for it to burst, London-based Buiter and Shen Minggao in Hong Kong estimated. Citigroup joins hedge fund manager Jim Chanos, Gloom, Boom & Doom publisher Marc Faber and Harvard University professor Kenneth Rogoff in warning of a potential crash in China. The country has yet to raise interest rates or allow its exchange rate to appreciate, keeping in place some of the extraordinary measures implemented during the financial crisis even as inflation and asset prices accelerate. “What is policy in China doing about the threat of overheating in the financial and real economy?” Buiter and Shen said. “The short answer is: not much, and not enough to prevent the creation of what could become a major asset boom, bubble and bust.”

8. Battle lines hardening - The debate between America and China about whether China should allow its yuan to float higher versus the US dollar is heating up and the battle lines are becoming more defined, Bloomberg reports. This is the next fault line in the global economy. America is about to declare China a currency manipulator, which would give it the green light for trade sanctions. If that happens, all hell will break loose, so watch this space closely in the next couple of weeks.

“The Chinese government will not succumb to foreign pressure to adjust our exchange rate,” Zhong told reporters yesterday during a trip to Washington to meet with U.S. officials and lawmakers. “To force the appreciation of the renminbi will be counterproductive.” China, which has held the renminbi at about 6.83 per dollar for the past 20 months to aid exporters, has been criticized by lawmakers who are looking for the Obama administration to take retaliatory action through import tariffs. Representative Sander Levin, a Michigan Democrat and acting chairman of the U.S. House Ways and Means Committee, held a hearing yesterday in which he called China’s yuan policy “bad for the rest of the world” and said the “status quo is not sustainable.” Retaliatory tariffs are unacceptable, Zhong said.

9. Trouble ahead - Mortgage delinquencies among the most credit-worthy households in America surged in the fourth quarter, Reuters reported here. This shows the stress many households face there and why their housing market seems set for a double dip in prices. Meanwhile, longer mortgage rates are rising and so is the US dollar. It looks very ugly over there.

The increase in seriously delinquent mortgages was most pronounced among prime borrowers, with an increase of 16.5 percent in seriously delinquent mortgages during the fourth quarter. Prime mortgages are granted to the most credit-worthy borrowers, a sector that initially had raised few worries when the housing bubble burst as problems surfaced with the subprime mortgages offered to the riskiest borrowers. The continued decline in performance of prime mortgages is a significant trend, given that those mortgages accounted for 68 percent of all mortgages within the portfolio. The report defined "serious delinquencies" as those loans 60 days or more past due and loans to delinquent bankrupt borrowers. The report covers nearly 34 million loans totaling almost $6 trillion in principal balances and provides information on their performance through the end of the fourth quarter of 2009.

10. Totally irrelevant video - He's a gummy bear, yes a gummy bear, a yummy, gummy, funny, lucky gummy bear.....One especially for Roger Thompson.