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What We Read Today 26 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.

  • Sanctions Against Russia: Will There Be Blowback? (Ben Kramer-Miller, Wall St. Cheat Sheet) Possible blowback include Russia dumping U.S. Treasuries (it holds $132 billion) and disrupting international financial markets, cutting off oil and natural gas to Europe which depends heavily on that source of energy, interfering with western corporations which have been doing business in Russia, withholding wheat from its usual customers, withholding palladium from world markets (it is the world's leading producer), etc., etc., etc. (See also next article.)

  • "No Great Tragedy" (Dave Gonigam, 5 Min. Forecast) Dave points out that Russia, a net exporter (approaching $200 billion trade surplus each of the last two years), has much more to lose from global economic disruption than to gain, at least in the short run. He points out that Russia could move away from Europe and more to China as a mercantile partner, but "these things are not done in a day, and the Russian people have to eat in the meantime".

russia-europe-depend

  • 5 things every retirement portfolio should have (Robert Isbitts, MarketWatch, The Wall Street Journal) Rob Isbitts contributes weekly to Global Economic Intersection. Here Rob defines the five characteristics necessary for investing successfully for and during retirement.
  • There will be no Minsky moment for China (Peter Cai, China Spectator) Cai says that the Chinese government has "enormous power" and could "act decisively" to prevent a crisis from getting worse. What is that power? The government is the central bank, the only large scale economy in the world where that is the case.
Yes, China faces huge challenges this year in dealing with mounting debt problems and a slowing economy. But we cannot ignore the fundamentals, such as strong balance sheets and reform momentum. If history tells us anything, it's that Beijing has a strong record of proving pessimists wrong and shorting China has never been an easy proposition.

Today there are 13 more articles discussed 'behind the wall'.

Please support the work of Global Economic Intersection by subscribing to our premium content 'behind the wall'. It is only $25 for an entire year.

  • The Rise Of The $156 Trillion Market For Global Financial Assets (Sam Ro, Business Insider) Here is another illustration of the "Ponzi-fication" of global finance. With the value of financial products equal to 2-3 times global GDP (up to 13 times if derivatives are included), the "cashing out" of all financial instruments from "production" of all things counted in GDP is almost certainly not possible. Recognizing that GDP represents an accounting of production and consumption, how many years of activity do the total value of financial instruments represent after subsistence levels are reserved for all humanity? One can only guess, but we are probable talking about decades. Thus, "cashing out" for some requires additional investment from others or severe economic dislocations will occur. This is the ultimate Ponzi scheme.

Yes, we will acknowledge that there are offsetting positions that theoretically are self-cancelling in this ocean of financial instruments, especially with respect to derivatives. But those counter-party arrangements collapse like a house of cards with only a few counter-party "defaults". All it took to collapse the structure in 2008 was Lehman Brothers going under. That firm had an estimated 0.0001% (+/-) exposure to the global derivatives market. The removal of one card out of a million brought the house down.

financial-assets-global-world-gold-council-sam-ro-2014-mar-25
World Gold Council

  • The 100 Best Economics Books of All Time (List Muse) Hat tip to Roger Erickson. Is there a difference between the "best" and the "most important"? The blog's self-definition of intent would suggest that there is a difference:
The list is for those with a serious interest in economics, but not necessarily for economics professionals; it contains some books on the principles of economics, but is light on theory, focusing on more readable texts.
  • Last Gasp For Hard Disk Drives (Jim O'Reilly, Information Week) Hat tip to Lynn Wheeler via LinkedIn. Is the new well designed high performance 2.5-inch HDD from Western Gigital going to be the last-of-breed for enterprise disk stogae systems? Will SSD (solid state "disks", aka electronic "disks) which contain no actual disks at all be displacing the slower magnetic storage devises for arrays and other large-scale applications?
  • "No Great Tragedy" (Dave Gonigam, 5 Min. Forecast) Will Russia be the investment opportunity of the years for 2014?

Russia-ETF-2014-mar-25

  • Bitcoins are property, not currency, IRS says regarding taxes (Kevin Drawbaugh and Patrick Temple-West, Reuters) This clarifies the tax status of bitcoins in the U.S. One effect will be a higher tax on bitcoin miners who must declare as income the market value on the date they "extract" each bitcoin (presumably offset partially by acquisition cost) unit. Previously some miners may not have declared any income upon receipt, only when they eventually disposed of mined units. This may be a disincentive to mine bitcoins, according to the article.
  • Wealth Over Work (Paul Krugman, The New York Times) Prof. K takes a cut at a much discussed topic. He sees a continuing "drift toward oligarchy".
  • Shifting focus in the treasury markets (Walter Kurtz, Sober Look) The sort end of the yield curve (0-3 years) has steepened over the last two weeks while the long end (3-30 years) has flattened. A flattening yield curve is considered a warning of expected slower growth; a flat or inverted curve (long rates less than shorter rates) is a reliable sign of an impending recession. A steep yield curve is a representation of expectations for growth and possibly inflation. So, is the proper interpretation of the recent changes in the yield curve to be for an acceleration of growth over the next 3 years followed by a slowdown? Or is that a (thought) bridge too far?

yield-curve-changes-2-weeks-sober-2014-mar-22

  • The Los Angeles That Was Never Built (Eric Lloyd Wright, Smithsonian.com) A fascinating collection of plans, some wild, that would have made Los Angeles a much different metropolitan area had they been implemented.
  • The Favorable Demographics for Apartments (Bill McBride, Calculated Risk) A boom in the U.S. population aged 20-34, which is a prime age group for residential rentals, will not peak for at least 20 years> That is why Bill says he is especially bullish on apartment properties.

  • Ripples From the Big Bang (Dennis Overbye, The New York Times) Another worthwhile attempt to relate the meaning of the latest observation of ripples in space-time to those of us who need common language interpretations.
  • Home Builders Need to Breakout Now, Or... (Chris Kimble, Advisor Perspectives dshort.com) Homebuilder stocks (Dow Jones Home Construction Index) have reached a key major historical resistance level and formed a double top. It is hard to imagine (from a technical viewpoint) that a major decline or an upside breakout are the two most likely options.

Click on chart for much larger image at Advisor Perspectives dshort.com.
home-builders-kimble-2014-mar-24-600x300

Ukrainians must take up arms against Russians so that not even scorched earth will be left where Russia stands; an example of former Ukrainian PM Yulia Tymoshenko's vitriol in phone call leaked online. She confirmed the authenticity of the conversation on Twitter, while pointing out that a section where she is heard to call for the nuclear slaughter of the eight million Russians who remain on Ukrainian territory was edited (not present in this clip).


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