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What We Read Today 06 March 2014

Econintersect: Every day our editors collect the most interesting things they find from around the internet and present a summary "reading list" which will include very brief summaries of why each item has gotten our attention. Suggestions from readers for "reading list" items are gratefully reviewed, although sometimes space limits the number included.

  • How the Ukraine crisis ends (Henry Kissinger, The Washington Post) The former U.S. Secretary of State says that Ukraine cannot exist as part of the EU or as a Russian satellite: The only solution is for an independent country which functions as a bridge between Russia and the rest of Europe.
  • Doom All Around You (Reverse Engineer, Doomstead Diner) Reverse Engineer contributes to Global Economic Intersection. A real rant on the degradation of predator financial economics and the banksters' corporate cronies. Warning: This podcast is in the classical Gonzo journalism tradition, including a healthy portion of foul language.
  • IBM workers strike in China over terms of Lenovo takeover (Tom Mitchell and Charles Clover, Financial Times) IBM workers (more than 1,000 strong) have struck the IBM low-end server plant in Shandong province near Hong Kong. The plant is due to be transferred by IBM to Chinese computer manufacturer Lenovo as part of the sale of the server business announced in January. The workers are demanding more compensation to make the transfer to the new owner and also for workers who choose not to make the move or are let go. The action has been taken independently of the official government-backed union. The FT says that such actions are becoming more of a concern for companies trying to make cross-border mergers and acquisitions. They cite a deal that fell apart last year between Cooper Tire (also in Shandong) and Apollo Tyres of India.

There are 15 more articles discussed today 'behind the wall'.

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gaxprom-Europe

  • E.P.A. Set to Reveal Tough New Sulfur Emissions Rule (Coral Davenport, The New York Times) The article focuses on the health exposures from sulfur emissions but it is also a major contributor to acid rain which has decimated flora and fauna in some mountain areas
  • Does Social Security Fit Like A 'Bond' In Clients' Portfolios? (Dan Moisand, Financial Advisor) Author argues that Social Security doesn't belong in your portfolio at all, no more than would a job. It is simply cash flow and belongs in the income stream accounted for the same as an inflation adjusted annuity payment stream.
  • Inside The Facebook-WhatsApp Megadeal: The Courtship, The Secret Meetings, The $19 Billion Poker Game (Parmy Olson, Forbes) Read the details of the two years of negotiations that led to the second largest merger acquisition of a venture capital backed firm in history. This deal may relate to potential that Econintersect has not yet seen discussed elsewhere: Facebook plus WhatsApp plus a new drone aircraft relay mobile network may provide a new, flexible and inexpensive competitor to existing network enterprises. This might be a whole new network which will do an end run on what has been until now the global communications backbone. See next article.

tech-acquisitions-forbes-parmy-olson-mar-04

  • Facebook Looking Into Buying Drone Maker Titan Aerospace (Sarah Perez and Josh Constine, Tech Crunch) This is repeated from yesterday's "What We Read Today". This should be a lot cheaper than satellites and probably capable of much faster cheap uploads using an array of transmitting cell towers because the drones can be well within cellular range whereas the much higher synchronous satellites are not. This is not mentioned in the Tech Crunch article which discusses the extension of "weak" internet services to remote regions as a primary business possibility.
  • Deflation and the ECB (Frances Coppola, Coppola Comment) Frances Coppola has contributed to Global Economic Intersection. (Note: See also GEI News article today.) Last week ECB (European Central Bank) President Mario Draghi said that there was clearly no deflation in the euro zone. Coppola begs to differ. If the amount of money is contracting there is no other possibility than either deflation of prices or deflation of quantities sold. Since the primary source of money in the euro zone is bank credit then contracting bank credit is deflation, regardless of what any secondary judgment holds. Coppola says:
The ECB's inaction appears to be primarily due to positive growth rates for household credit, particularly in Germany and France: as Draghi says, "households are not deferring purchases". But it really isn't good enough to argue that household credit is holding up, and therefore there isn't a problem. Yes there is. Stagnant or falling bank lending to businesses means stagnant or falling business investment. And that will follow through in due course into higher unemployment, lower wages and depressed demand.

Relying on household credit growth when business investment is stagnant or falling is unwise (UK government, please take note). It is possible that increasing consumer demand could stimulate business investment. But the ECB's monetary developments report for January suggests that the household credit growth is in mortgages, not consumer lending. I suppose that wealth effects from increased home ownership could encourage higher spending, stimulating business investment. But haven't we played this scene before, with less than happy results?

Click on graphic for larger image.
euro-credit-coppola-2014-mar-05-600x240

  • Growth and Interest Rates: I Appear To Be Wrong (Paul Krugman, The New York Times) Econintersect loves when you talk data! Prof. Krugman has looked at the data and has reversed a previous postulate with a contrary proof (refuting that postulate). He now says that lower growth makes debt harder to carry. He has the following graph which shows the lower growth since 1980 has corresponded to interest rates being higher than growth (making interest payments more of an economic burden), whereas the opposite was the case before 1980.

interest-growth-krugman-NYT-2014-mar-02

  • Russia's central bank hikes overnight rate, ruble continues to weaken (Walter Kurtz, Sober Look) Hurtz says all this plays into a strengthening of Russia's current account, which is already positive (although volatile). The ruble has declined more than 15% against the euro over the last four months. This strengthens the position for a net exporter like Russia.

EURRUB-2014-mar-05

  • Carry on conduits (Tracy Alloway, FTAlphaville) CMBS (commercial mortgage backed securities) originations are rising in volume again. The commercial mortgage market has seen double digit growth over the past year and that is expected to continue in 2014, up 26% to $129. This is 43% less than the 2007 peak ($227 billion). Is the economy growing fast enough to warrant such a fast growth rate in commercial real estate lending?
  • 5 Charts That Put Apple’s Cash Pile in Perspective (Daniela Pylypczak, Dividend.com) With 1/3 of it's market cap in cash Apple is "loaded". What could it do with all that cash (nearly $150 billion)? One of the graphs gives some ideas. Should Apple become a conglomerate?

apple-can-buy-dividend.com-2014-mar-05

  • NFIB Letter to IRS The National Federation of Independent businesses has written a letter to IRS Commissioner John Koskinen asking for clarification on rulings that give the agency the right to review personnel changes of companies with more than 100 employees with respect to how the ACA (Affordable Care Act) mandates are affected. Specifically the NFIB requests justification of 'transition relief" for companies with fewer than 100 employees. They also ask for clarification of other rulings such as the right of the IRS to review personnel changes which might affect how the company would be required to comply with ACA. The letter also contests the authority of the IRS to even make such rulings. Finally the letter challenges the process which the NFIB suggests were done without any hearings for those affected.
  • Can the rally in global commodities be sustained? (Walter Kurtz, Sober Look) At least part of the rise over the past couple of weeks can be attributed to Ukraine and to weather. Sustainability can only be assessed with time. Kurtz says that "commodity valuations are still at depressed levels relative to the past decade, but after a prolonged decline, broad indices seem to have stabilized."

commodities-sober-look-2014-mar-05


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