Econintersect: Here are some of the headlines we found to help you start your day. For more headlines see our afternoon feature for GEI members, What We Read Today, which has many more headlines and a number of article discussions to keep you abreast of what we have found interesting.
Oil Falls the Most in Two Months After Biggest Gain in 25 Years (Bloomberg) Speculation has faded that OPEC might coordinate with other nations to curb supply. Futures slipped 7.7% in New York after surging 27%t in three days, the most since August 1990. Prices fell as Chinese manufacturing slowed and U.S. crude stockpiles were forecast to have increased.
How the BRICS came down to Earth (The Global Guru) The popularity of the acronym "BRICs" - which stands for the fast-growth economies of Brazil, Russia, India and China - spread like wildfire in the post-financial-crisis world. Coined by ex-Goldman Sachs economist Jim O'Neill in 2003, the BRICs came to symbolize the shift in global economic power away from the developed G7 economies and toward the developing world. Not so long ago, the rise of the BRICs seemed inevitable. After all, together, the BRICs encompass more than 25% of the world's land mass and 40% of the world's population. And the combined Gross Domestic Product (GDP) of the BRICs exceeds that of the United States. And if you adjust for Purchasing Power Parity, together the BRICs already account for 52% of the planet's GDP. But, for investors that was all misleading hype. The reality is that the MSCI BRIC Index is currently down 48% from its 2007 peak while U.S. equities are within shouting distance of their recent all-time highs and the Dow is 14% above the 2007 high.
How Western Capitalism laid China low (Anne Pettifor, The Herald Scotland) Hat tip to Roger Erickson. A steadfast opinion that the Fed can't raise rates any time soon makes Pettifor "lonely" at many financial meetings. But she sees fundamental economic tides such as this week's news of the biggest fall in world trade in six years, according to the World Trade Monitor. All the slowdown around the globe is spreading as a long-term debt/deflation scenario plays out. (See article about BRICS above.) She says many are oblivious to the obvious:
Once again the jaded but unbowed financial and economic establishment are in stupid denial. Far from acknowledging all the evidence - that it is the very deep flaws in the dominant economic model of liberal, unfettered finance that is the ongoing cause of many crises - they instead resort to appeals for more 'life support' to revive a private finance sector addicted to massive capital gains and profits.
So expect more trouble and strife. Without using the growing evidence of the system's flaws to produce a sound diagnosis of the disease at the heart of the global financial system, it will not be possible to find a cure for periodic and even systemic crises.
Asian Markets at Midday (CNBC) Markets are mixed in Asia/Pacific markets in midday trading, with both Tokyo and Shanghai higher.
Where Is The Housing Market Thriving? (Financial Planning) The ten "healthiest housing markets are listed here and they are very concentrated geographically: 6 are in the 9 northeastern states and 4 are in Texas and Oklahoma.
Migrant crisis: Thousands arrive in mainland Greece (BBC News) Thousands of migrants are arriving in mainland Greece as the government prepares for talks on tackling the huge number of people reaching its shores. Two ships carrying more than 4,200 people traveled to Piraeus port at night after leaving Lesbos island. The whole EU is struggling to deal with an unprecedented influx of migrants. The EU's border control agency, Frontex, says 23,000 migrants arrived in Greece last week alone - an increase of 50% on the previous week. More than 160,000 people have arrived in Greece so far this year - already surpassing last year's total. Another report, also from the BBC, says that 230,000 have arrived in Greece so far in 2015. Another 115,000 have entered Europe through Italy to account for most of the 350,000 total. Untold thousands have died, mostly by drowning in the Mediterranean.
In case you aren't up to speed on your Japanese history, the nation's post WWII Constitution prohibits military action unless it's in self-defense. Clearly a sensible approach, which is why the current Japanese government, led by the demonstrably insane and incompetent Prime Minister Shinzo Abe, wants to get rid of it.
This story is very important. Not only will this action increase the likelihood of World War III in the Far East, but it's another important example of a government acting against the will of the people.
PBOC Seen Quitting Yuan Support by End-2015 as Reserves Shrink (Bloomberg) Rabobank predicts the yuan renminbi will devalue from 6.4 to the U.S. dollar to 7 by yearend. Until the first devaluation in August the exchange rate was 6.2. At 7 the devaluation would be 13%. The euro is currently 19% below its dollar exchange rate two yeras ago.
China's central bank will have to step back from supporting the yuan by early December and allow the currency to decline, given the current strain on foreign-exchange reserves, according to Rabobank Group.
The nation has to keep at least $2.7 trillion in hand to avoid any potential shortfalls, considering it needs $1 trillion to pay for six months of goods imports and $1.7 trillion to service external debt, Michael Every, head of financial markets research at Rabobank in Hong Kong, wrote in a note Tuesday. The stockpile will shrink by $40 billion a month for the rest of 2015, partly due to efforts to prop up the yuan, according to a Bloomberg survey conducted in August.
Trying to throw our arms around the (sick) Chinese economy (FT Alphaville) Christopher Balding, Professor of Economics at Peking University, HSBC Business School, and blogger at Balding's World says "the picture of the Chinese economy we receive from output data through July 2015 is unequivocal weakness". He reviews the paucity of service sector data before stating his conclusions:
"Fundamentally, there is little evidence to support the belief that the service sector is driving the Chinese economy."
"Output data matters because the real economy is composed of the total output of goods and services independent of price changes. The output data for China paints a decidedly different picture of the economy than official reports."
"Based upon this, it appears that the patient is sick. Countries with flat to declining output of goods and services, and facing wide spread price deflation, are not healthy economies. More than the fall in the stock market, this is what should worry investors."
Canadian economy enters recession (BBC News) The Canadian economy has entered recession, official figures have shown. Gross domestic product (GDP) fell by an annualised rate of 0.5% between April and June. That follows a contraction of 0.8% in the first quarter, meaning the economy has seen two consecutive quarters of negative growth, the usual definition of recession. See next article.
Canada PM Harper says it's a bump, not recession (CNBC) Prime Minister Stephen Harper, campaigning for a fourth term on a record of economic growth, has refused to recognize that Canada is in a recession, despite new data to the contrary. Collapsing prices for oil - a major export - have taken their toll on Canada's economy, which has recorded its second consecutive negative quarter, the economic benchmark of a recession. (See preceding article.) Harper, who is considered to be in a tough race for the October election, prefers to call the two down quarters a "bump in the road".
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