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What We Read Today 16 April 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.

  • Turkey's Rogue Game in Syria (Patrick Cockburn, Counterpunch) Hat tips to Chuck Spinney and Roger Erickson. There are reports that the CIA and Turkey conspired to move Gaddafi's weapons stores from Lybia to Syrian rebels. This was reported by Pulitzer Prize winner Seymour Hersh in the London Review of Books in The Red Line and the Rat Line and was also discussed by GEI contributor Washington's Blog.

  • CBO sticks with 6M ACA enrollment prediction (Alex Wayne and Gillian Roberts, Employee Benefit Advisor) One detail not given a lot of notice in the latest CBO assessment of Obamacare costs (see GEI News) is the continued use of the 6.0 million number for the number of people covered thus far by the new law. With enrollment numbers reported above 7 million this is likely a hedge against some enrollees not following through with premium payments. Econintersect notes that it is not clear what if any estimates have been made for special enrollments that can occur between open enrollment periods. Special enrollment is available for any change of life event: family circumstance, change of employment, etc. there have been estimates from insurance industry sources as high as 3 million more enrollees from special enrollments between now and the start of the next open enrollment period 15 November 2014. This leads us to conclude that any estimate from the CBO or any other source right now is about as solid as smoke in a hurricane.
  • Heartbleed is about to get worse, and it will slow the Internet to a crawl (Brian Fung, The Washington Post) There will be a massive effort to rebuild encryption systems all over the web to correct what is becoming an ever increasing threat. It now appears that hackers are able to mirror any firm's website and capture valuable personal information the users believe is being given to the trusted firm.

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  • Egypt's Solvency Crisis (Steven A. Cook, Council on Foreign Relations) Egypt has barely sufficient foreign exchange reserves to pay for three months of food and fuel for the country, estimated to be about $15 billion.

egypt-foreign-reserves

  • Rethinking the Need for Immediate Annuities (Alan Lavine, Wealth Management) The surest guarantee of not running out of money is to but an immediate annuity when retiring. But many do not want to give up control of principle. A number of scenarios are discussed where a minor allocation of assets to an immediate annuity have made sense.
  • Africans face $2bn yearly ‘remittance supertax’, says report (Javier Blas, Financial Times) A UK think tank, Overseas Development Institute, reports that a money transfer to sub-Saharan Africa averaged about 12%. This is 2/3 more than the global average of 7.2%. The bulk of the money transfers are from migrant workers sending money home. There are pledges from the G-20 nations to reduce the cost of transfers to 5%. The G-8 set the objective six years ago and the G-20 signed on 4 years ago. The majority of transfers are handled by MoneyGram and Western Union who say that government regulations are keeping costs up.

recession-prediction-voxeu-2014-apr-15

  • The Problem With Profitless Start-ups (Kevin Roose, New York) There are lot's of money losing start-ups that just keep on chugging along with more capital infusions. The author says that unfortunately some of these will never be profitable and a "benevolent Ponzi scheme" is doomed to collapse and will also carry with it the corpses of profitable ventures that might have survived had they not been undercut in pricing.
  • Notes from the DoubleLine Lunch with Jeffrey Gundlach, Spring 2014 (Josh Brown, The Reformed Broker) Hat tip to Barry Ritholtz at Bloomberg View. Josh Brown justly praises this great diagram but still it must not be used without further information. The change in correlations can be significant over shorter periods of time and were contributory to large portfolio losses in 2007-2009. Some portfolios depending on correlations from the previous three years fell apart in the crash to great detriment. If you are using correlations to design portfolios it is best to track the changes in correlations over periods of months and change allocations when correlations shift. Don't get caught when compensating correlations suddenly align and take everything down together.

Click on diagram for larger image.
bond-correlations-gundlach-600x450

  • 52% Say Taxes Too High, 54% Say Taxes Fair; Too High But Fair? (Mike Shedlock, MISH'S Global Economic Trend Analysis) Mike says this is "very curious" but not if you consider the confidence interval is +/- 4% on each number. "Too high" is between 48% and 56% with 09% confidence, while "fair" is between 50% and 58%. In the sample size the observed results could be obtained if approximately 20 people who said taxes were fair also said they were too high. Over 1,000 would have said both. That's probably better agreement than many surveys would have obtained for closely related questions. The full report by Rebecca Riffkin, Gallup Politics: More Than Half of Americans Say Federal Taxes Too High.

taxes-fair-too-high-gallup

  • Christopher Whalen: The death of mortgage lending (Jacob Gaffney, REwired) Econintersect's shorthand interpretation is that there is not enough "easy money" in mortgages like the old days of leveraged mortgage securities and complex derivatives that made silk out of cow manure. High rollers once, regular workers never again. You can't keep Johnny down on the farm after he's seen Paris. And a few other trite remarks could apply. But it comes down to how to make a buck which is more elegantly summarized by Gaffney:
If you actually take the time to look at mortgage lending based on a risk-adjusted return on capital, it quickly becomes clear that no rational investor would want to put capital behind a standalone lending operation.
  • Mapping a century of earthquakes (Flowing Data) The map below shows the past century of known earthquakes with a magnitude of at least 5. (There are actually nearly a million earthquakes per year, but most of them are not felt. A earthquake of magnitude 5 might cause damage to buildings.) Each white dot is a quake, of which there were about 72,000, and as you'd expect, you get a sense of plates tectonic boundaries. The ten earthquakes of highest magnitude in the past 100 years are highlighted green.

Click on map for larger image.
earthquakes-100-years-600x300


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