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What We Read Today 23 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.

  • China Flash PMI remains weak (Houses and Holes, Macro Business) Nothing much is improving in this preliminary reading of PMI (Purchasing managers' Index) for April. See summary table after the Read more >> jump.

china-flash-pmi-2014-april

  • Donbass' Roots of Violent Division: Geography, History, Culture (Ivan Nechepurenko, The Moscow Times) Hat tips to Roger Erickson and Chuck Spinney. In case you thought you understood the cultural, ethnic, political and social issues involved in Ukraine, read this to find you were totally ignorant. If you understood even part of this why didn't you send us an article so we could have been informed earlier? By the way, this article only goes back about 500 years or so. If it went back a millennia and more it would have mentioned that Ukraine and other river-crossed regions all the way into central Asia were overrun by Vikings although possibly more as traders than as warriors.

Today there are 12 articles discussed 'behind the wall'.

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  • How China's Commodity-Financing Bubble Becomes Globally Contagious (Tyler Durden, Zero Hedge) Hat tip to TalkMarkets. China's programs of commodity funding deals are coming apart as the funding is no longer sufficient to pay for the deals. Durden predicts a coming commodity price collapse as China's funding dries up. Note (below) the huge 15% gap between China's exports "on the books" (which support commodities prices) and what the corresponding importers of Chinese goods have "on their books". The eventual (and sooner probably rather than later) reconciliation of this imbalance will create a crushing blow to commodity prices as Chinese importers "tear up their commodity orders". Durden says that gold is a big part of this commodity trade, even bigger than copper.

China-commodity-funding-scheme-collapse-zh-2014-apr-21

He calls the new exchange the USE (U.S. Exchange) and the new type of stock U.S. Security shares. Presumably the total number of shares for any company would not change as corporations would convert some existing stock to the new shares. The "old style" shares would continue to trade on the current exchanges which would continue to allow HFT. The "new style" shares would have a minimum holding period of several days after purchase, with the exception of stop-loss sales being allowed. The separate pricing of the two types of shares would likely result in "old" shares and "new" shares trading for different prices, to the advantage of the less volatile U.S. Securities in Kidney's opinion.

Over time market forces would create a balance between the number of "new" U.S. Securities and the "old" capital stock shares. Market forces would establish how the "balance" would shift over time between the new investment market and the old speculation market.

This is an interesting proposal but certainly will not find backing on Wall Street. And the devilish details remain, of course.

  • Everyone In America Should Care About What Chipotle And Netflix Are About To Do (Sam Ro, Business Insider) For decades corporations have seen profits increase as revenues grew and labor costs were lower as a share of revenue. That is illustrated in the following graph. But now the economy is unlikely to support further movement in the same direction (labor share decline must eventually impact spending) and a reversal of revenue growth will reduce profits just at a time when the economy is crying out for increased labor income. Absent any growth in labor income a downward spiral may ensue: (1) Lower revenues lead to a reduction in number of employees (or hours worked, or amount of compensation); (2) Reduction in consumer spending drives revenues lower and so start (1) all over again. It's called a "death spiral".

consumer-spending-vs-income

deliquency-foreclosure-CR-2014-apr-22

  • After 450 years, we still donít know the true value of Shakespeare (Kate McLuskie, The Conversation) The author suggests that trying to assess the "value" of Shakespeare is a fool's errand, similar to trying to calculate the "value" of "the Rocky Mountains or the music of the Rolling Stones". Perhaps she could have really gotten hammy and thrown in a Mastercard "priceless".
  • Case Study: IBM Stock Buybacks and Debt Issuance (John Bougearel, Advisor Perspectives dshort.com) In the past couple of years IBM has converted obver $30 billion from shareholder equity into corporate debt. This is leveraging up the company and grading down its formerly pristine balance sheet.

IBM-equity-into-debt

  • Pettis: 11 reasons Chinaís debt must be faced (Houses and Holes, Macro Business) Macro Business has posted an excerpt from an article that Econintersect will be publishing in its entirety within days. China is rolling over debt that must be written down. Pettis thinks that this is inflating GDP by 20-30%. So with proper debt management China would have GDP growth today closer to 5% than the more than 7% reported.

Click on map for larger images at mapsbynik.tumblr.com.
census-blocks-map

Kiriakou was convicted of violating the Intelligence Identities Protection Act for revealing classified information concerning an undercover CIA agent to a reporter, who did not publish the information.

However, many have come to believe that Kiriakou is being punished for confirming to ABC News that Abu Zubaydah, an alleged aide to Osama bin Laden, had been waterboarded, marking the first public confirmation of the use of the torture tactic in American-run interrogations.

  • Beware the Rounded Top! (William Kurtz, Candelaabra email) Bill says the pattern Tuesday is a classic bearish one.

bearish-pattern-2014-apr-22


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