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What We Read Today 26 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.

  • Is this the end of the housing recovery? (Rick Sharga, RE Wired) Housing sales are likely to be flat in 2014 because: (1) there is little inventory at the low end of the market; (2) first time home buyers are staying out of the market; (3) mortgages are not easy to get; and (4) affordability is a problem. For recent detailed analysis see also existing homes sales and new home sales.

  • CO-OPs squeeze premiums (Allison Bell, Life Health Pro) Lo and behold! Remove the profit motive and costs are lower? That's what Mark Bertolini, the chairman of Aetna Inc., said on Thursday during the company's first-quarter earnings call. He was talking about the effect of co-op insurance plans offered by members of the National Alliance of State Health CO-OPs, which have 23 member plans covering 400,000 enrollees -- up from none on Sept. 30, before first Patient Protection and Affordable Care Act (ACA aka Obamacare) exchange system open enrollment period began. Bertolini said the reason Aetna withdrew from some states public exchange programs was because they couldn't compete with the co-ops. He said their rates were "irrationally low". Perhaps he thinks it is irrational not to include a 30% margin for corporate profits and executive compensation?

Today there are 14 articles discussed 'behind the wall'.

There are four articles about Japan and five concerning China.

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Econintersect would point out that this implies inefficiency of debt but whether this is the case or not depends on where the money that did not go into GDP went. If it went into speculation (some probably did) then efficiency of the debt may be specious. If it went into excess reserves at the Federal Reserve (some certainly did) that portion has no effect on efficiency of debt and probably should be eliminated from the comparison.

Finally, we have difficulty in justifying the graphics used by Richter. We understand the usefulness of showing the comparisons of credit over time for historical comparisons. But we cannot see any usefulness in the selection of different vertical scales for the two bank credit metrics. As displayed the graph indicates that loans and leases (black) have grown faster in the past couple of years than has total credit (red). That appearance is an artifact of the two vertical scales selected. Between 2Q/2012 (the most recent time with red and black curves touching) and February 2014 loans and leases have grown by $500 billion (6.7%) while total credit has grown by $590 billion (6.1%). Even though the graphs used by Richter appear to show that black (loans and leases) grew more. The visual representation infers that black (loans and leases) grew by a greater amount over those seven quarters but actually total credit grew more. This graphical representation is confusing.


  • Judge Orders Forfeiture of $45.8M in E-Gold (Fox 45, Combined with a previous forfeiture in 2012, this brings the total to $56.6 million forfeited from accounts of "electronic gold" used for money laundering and seized in 2011. e-gold Ltd (EGL) was convicted of money laundering and operating an unlicensed business in 2008. All accounts at EGL have now been returned to owners or confiscated as illicit or unclaimed.
  • 4 Types of Homes That Won't Sell (Daily Real Estate News, Realtor Mag) More than half of U.S. homes are not likely to be put on the market soon. Categories: (1) Less than 20% equity (about 19% of all homes); (2) low mortgage rate, less than 4.25% (16%); (3) purchased or refinanced in last seven years (14%); and company or investor owned homes (3%).
  • Costs keep mounting for idled reactors (Aaron Sheldrick and Osamu Tsukimori, Japan Times) Although a few Japanese nuclear reactors make come back on line, many of the country's 48 nuclear power plants may end up mothballed and decommissioned at the direct cost of many tens of billion dollars and indirect costs for importing fossil fuels much higher. And the country (and its utilities) are also paying billions in compensatory damages to 160,000 people forced from their homes near the Fukushima plants destroyed by the 2011 earthquake and tsunami.
  • Japan's inflation rate has stalled as impact of yen depreciation wanes (Walter Kurtz, Sober Look) The consumption tax increase gave a one-time boost in April to core CPI (Consumer Price Index) but otherwise the rate appears to have flattened at 1.3% per annum, only about 2/3 of what the government had hoped to reach (2%). The yen has apparently stabilized at about 100 to the U.S. dollar so depreciation as a source of additional inflation also appears to have run its course. Abenomics has stalled only about halfway up the mountain.

CPI data through March 2014.


  • Abe’s disturbing lack of focus (Anatole Kaletsky, Reuters) Kaletsky bemoans Abe's diverse and conflicting actions from engaging in a an escalation of territorial conflict with China over some East China Sea islands to pursuing a conflicted policy of loose monetary policy and tight fiscal policy. Econintersect has covered the conflicted policy from the start. See GEI News.
  • Japan risks angering China with military expansion (Reuters, The Guardian) Part of the lack of focus decried by Anatole Kaletsky (previous article), Japanese Prime Minister Shinzo Abe has announced plans to build a radar station near the islands in dispute with China.

The lawmakers were at an impasse.

More than two hours into a meeting of the House Financial Services Committee last month, the members were bickering over two versions of a bill designed to ease a new regulation that affected banks, part of the sweeping 2010 overhaul of financial laws known as the Dodd-Frank Act.

The dispute? Whether to give the banks everything they asked for, or whether to give them even more.

Rep. Scott Garrett, R-N.J., asked to postpone a final vote so he could contact "stakeholders," code for the bankers who wanted the change. Then Rep. Jeb Hensarling, R-Texas, the committee's ambitious chairman, attempted to retake the discussion with what passes for a joke in the oxygen-starved air of the wood-paneled hearing room in the Rayburn House Office Building on Capitol Hill.

"Occasionally we have been accused of trying to undermine aspects of Dodd-Frank," Hensarling said with a chuckle. "I hope we're guilty of it."

Hensarling was being modest. With a 29-person committee staff, dozens of congressional colleagues and legions of lobbyists lined up to beat back any attempt to impose new discipline on the industry, the 56-year-old from Dallas is well on his way to achieving that goal.

Roger Erickson says this "might be funny if they weren't destroying so many peoples' lives".

  • China’s Debt Endgames (Satyajit Das, EconoMonitor) Das discusses the contrasting views regarding China going forward: (1) a catastrophic crash involving a painful debt-deflation cycle and (2) a soft landing with gradual reforms resolving systemic issues. Whichever scenario (or some intermediate blend) Das is convinced that the debt driven growth model "may have reached its limits" and the endgame is near.

Click on graphic for larger images at The Wall Street Journal.

  • Two more senior China Resources bosses held in wake of Song Lin graft probe (Keith Zhai, Zhang Hong and Eric Ng, South China Morning Post) Investigation of corruption at a giant state owned conglomerate is widening. Three senior executives of China Resources have been taken into custody including the CEO Wu Ding. Last year the the former chairman of the state-owned oil giant China National Petroleum Corp, was placed under investigation for alleged corruption.
  • Suspicion grows that China is exporting deflation worldwide by driving down yuan (Ambrose Evans-Pritchard, The Telegraph) Evans-Pritchard says that the U.S. suspects China of driving down the yuan to bolster its weakening export sector. If so the move is contrary to the strengthening yuan that is needed to further a rebalancing of the Chinese economy toward greater domestic consumption, a change that economists like Michael Pettis maintain is essential for the economy of China to avoid a painful readjustment, even possibly a collapse. Whatever the cause, the yuan has made a spectacular move, depreciating by 3.1% vs the U.S. dollar in just a couple of months. See also following article.


  • Albert Edwards: China Headed Toward Outright Deflation (Michael Ide, Value Walk) And Edwards thinks the U.S. would follow. Econintersect has been following the Chinese deflation art the wholesale level for almost two years. See GEI News. So including the article preceding this one in the discussion, China may be facing a choice between (1) an appreciating currency and strengthening domestic consumption with deflationary pressures or (2) a depreciating currency with higher levels of exports, including the export of deflation.


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