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What We Read Today 28 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.

  • China’s Economy Under Mounting Stress (Wayne Arnold, The Wall Street Journal) China has trillions of dollars of financial assets and are unlikely to allow the economy to collapse. But, quoting Standard & Poor's:
"Even viable investments could struggle to get financing. China's growth could fall sharply for at least a few quarters, led by investment."

See further discussion about China in the first three articles 'behind the wall'.

  • Can Evolution Outrace Climate Change?(Sarah Laskow, Five Thirty Eight) The question is partly rhetorical and partly answered. The answer seems to be that given genetic diversity adaptation will depend on rate of change of the environment. Our thought is that there is a possible analogy to the frogs in a slowly heated pot. If the pot comes rapidly to a boil of course the live frogs are scalded and die. If the rate of heating is much slower then the frogs get comfortable, fall asleep and expire peacefully when the temperature is high enough. But what Laskow describes as a possibility is that the rate of heating could be so slow that the frogs would have a survival rate dependent on their adaptability to warmer temperature, those adaptable would reproduce, their offspring would likewise be selected for survival and reproduction and the frog species would evolve to be acclimated to warmer environments.
  • JPMorgan defeats appeal in U.S. silver price-fixing lawsuit (Jonathan Stempel, Reuters) In an appeal of a lower court opinion, a three judge panel for the 2nd U.S. Court of Appeals upheld the original verdict that JPMorgan did not violate antitrust and commodities laws by amassing huge short positions in silver and then submitting very large trades when market trading was thin. In other words, if it looks like a duck, walks like a duck and sounds like a duck it could possibly not be a duck if you do not have DNA evidence.
  • Former Prime Minister Announces Candidacy for President of Ukraine (Patrick Reevell and David M. Herszenhorn, The New York Times) Yulia Tymoshenko has announced she will run for the presidency of Ukraine in May elections. She lost a previous run for the office in 2010 to the recently overthrown Vitali Klitschko. Econintersect suggests she assume the nom de politik "Viking Princess" for reason's discussed 'behind the wall' two days ago (26 March).
  • More than 6 million Americans enrolled under the ACA, White House says (Juliet Eilperin, The Washington Post) The enrollment seems headed for a number of enrollees exceeding scaled back estimates of 6 million by the end of March. The number also is assured of falling short of the original CBO (Congressional Budget Office) estimate of 7 million. But even with the latest reports there are still many uncertainties regarding just how well the ACA (Affordable Care Act) is doing. See GEI News article by Christian Stellakis.

Today there are 15 articles discussed 'behind the wall'.

  • Morgan Stanley Sees More China Defaults as Cash Squeeze Tightens (Rachel Evans, Bloomberg) Morgan Stanley says more Chinese companies are headed toward default which will result from and reinforce leverage stresses, slower growth and tighter financial conditions. China allowed credit to spiral excessively during and following the Great Financial Crisis and cannot allow that unsustainable momentum to continue.
Those silly enough to believe that China's economy has "recovered" should at least been given some pause by this week's events. For China surprised the market with moves to reduce liquidity in the banking system and curb the property market. Clearly, the government is worried about the re-appearance of bubbles due to excessive credit growth. And they should be worried because it's obvious that the bubbles which caused China's slowdown never went away. In fact, they've gotten worse from government stimulus designed to prevent a hard economic landing. These government actions have made the chances of an imminent China crash more likely.

Before you put in panic sell orders to get everything in cash, check the date on this article: 23 February 2013, more than a year ago. Imminent may not be that soon.

  • Reforming China’s lumbering state giants (Peter Cai, China Spectator) While a lot of attention is focused on the fragility of some of China's smaller companies, this author says the state owned giants need reform. They account for 44% of industrial assets yet produce only 27% of output. Return on assets of the GOEs (government owned enterprises) is 5.9% while private concerns return 10.4%.

Click on graph for larger image at Political Calculations.
house-price-vs-income-polit.-calc-2014-mar-25

  • Foreign Investment in U.S. Hits New Record (Ian Talley, Real Time Economics, The Wall Street Journal) The new record in foreign investments within the U.S. increased by more than $1 trillion in the second half of 2013, to a new record. Most of the increase was due to increased asset prices rather from new money entering the country.

foreign-owned-assets-in-us-real-time-econ-wsj-2014-mar-26

  • These U.S. Colleges and Majors Are the Biggest Waste of Money (Derek Thompson, The Atlantic) You can major in art at a lower-tier public university if you want to. Just don't expect it to make you rich. And for a long list of public universities (and a few private ones), high school graduates out earn the university graduates by a wide margin. See also next article.
  • Which College—and Which Major—Will Make You Richest? (Derek Thompson, The Atlantic) If the previous article has you down, the same author has found that some colleges and some degrees are worth millions. A new study finds that nine of the 10 most lucrative degrees in America are in computer science programs at elite colleges-and Harvey Mudd runs away with the lead.

degrees-high-earning-derek-thompson-the-atlantic-2014-mar

real-gdp-per-capita-2014-mar-27

  • Property Taxes at a 20-Year High (Daily Real Estate News, Realtor Mag) About $488 billion in property taxes were collected last year, a 3% increase from 2012 and a 270% increase from 1992, the first year for which data is available. Property-tax collection totals have risen every year since 1992 except for 2010, when it fell by $5 million. This is the largest source of revenue for state and local governments.
  • Emerging Markets Are Attractive (Tiho, The Short Side of Long) The underweighting of emerging market stocks that has been going on for the past year has now reached an extreme level, (31% underweight). Underweighting has yet to mirror the 50% overweighting that was seen in 2007, 2009 and late 2010.

Click on chart for larger image.
eem-etf-2014-mar-27-600px

  • Putin's Russia caught in US and Chinese double-pincer (Ambrose Evans-Pritchard, The Telegraph) China may not be openly opposing Russia in the Crimea-Ukraine situation, but Evans-Pritchard reveals all the ways in which they are not supporting their neighbors to the north. After reading this article go directly to the next one for a different perspective.
"We're in a hell of a mess. If the world drops the 'Petrodollar,' we'll have a hot war in a week. We will go to war over the Petrodollar."


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