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What We Read Today 03 May 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.

  • Wisconsin’s GOP Secession Panic (David Freedlander, The Daily Beast) Wisconsin Republicans are set to vote on a measure this weekend that would affirm the state's right to secede from the union. Goodbye, U.S. of A., Hello U.S. of Cheese.

  • Unplugging employees helps productivity, morale (Michael Giardina, Employee Benefit News) A perpetual link to the workplace is common for most Americans, thanks to technology. Some employers allow for flexible work arrangements, but this permanent connectivity is being seen as damaging to morale and productivity. It is important that employees have corporate limits placed on their connection time, with certain hours specified as "offline". Separating "work time" from "personal time" can lead to better focus and efficiency, improving productivity.
  • SEC’s White Pleads for Advisor Exam Funds; Rep. Waters ‘Pushing Hard’ for User Fees Bill (Melanie Waddell, ThinkAdvisor) Today the SEC has 42% of the examiners for investment advisors (per $ 1 trillion of assets) compared to 2004. Last year only 9% of federally registered investment advisors were examined. What's happening here? Econintersect suggests those who want no regulation or supervision have succeeded in eliminating funding needed for those missions and then can argue that they should be eliminated because they are ineffective. See also next article.
  • Barbara Roper, Investor Watchdog: The 2014 IA 25 Profile (Savita Iyer-Ahrestani, ThinkAdvisor) A key aspect of degradation of the credibility of advisors has been the confusion between "advisors" and "brokers". This was addressed recently by top wealth advisor Rob Isbitts (GEI Investing): Are You Being Advised or Sold To? In this article Roper is quoted extensively. Here is some of what she had to say about a self-created hole that the SEC has to climb out of:
"We had a clear division between brokers and advisors, but the SEC chose to erase that line and now, going back and dealing with that is taking an unreasonably long time. The broad consensus is to apply a single fiduciary standard to all brokers and advisors alike, but [the regulators] still hesitate to act and bring this one to the table. Now, even a sophisticated investor does not know whether their financial planning professional is an advisor or a broker, and they won't know until the regulation is changed."

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

The first 5 articles are about China's housing market which is showing signs of increasing distress.

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  • Chinese anatomy of a property boom on its last legs (Ambrose Evans-Pritchard, The Telegraph) Continuing a discussion started yesterday (see next article). China has exceeded all bounds of rational residential real estate development. The aggregate value of Beijing real estate is approaching the same relative valuation that Tokyo reached in 1990 (a collapse of 67% followed) and Hong Kong in 1997 (fell 71%). Mao Daqing, Vice Chairman of Vanke Group, China's largest real estate developer is quoted as saying in 2011 China's house production per 1,000 population reached 35. This is an unheard of number according Daqing - hot markets have values as high as 14 and most developed countries are below 12, he says. And what is the ultimate proof of overbuilding? Inventories shooting through the roof. What's happening in China? A rocket ship launch trajectory:

china-housing-inventory

  • China's Housing Market Slows (Esther Fung, The Wall Street Journal) Housing sales fell 7.7% in the first quarter while housing prices held nearly steady, up just 0.1% in April (month-over-month). Year-over-year price increases averaged 9.1% in April, down from 10% in March and 10.8% in February. Developers have been cutting prices in 2014 as credit has tightened and oversupply has increased in smaller cities. In April 45 cities registered price declines, but a larger number (55) saw increases.
  • Tier 1 Chinese cities begin property discounting (Houses and Holes, Macro Business) This author has been following weekly news in China real estate and had some specific examples of accelerating changes in China's housing markets. Higher priced properties are being delisted, some parts of Beijing down 50%. Online listings show asking prices being cut aggressively. Much of the activity in delisting and cutting asking prices took place in after the first week of April.
  • Great Graphic: Asia's Decline as an Export Machine (Marc Chandler, Marc to Market) The New World Order based on strong Asian exports has changed. Following the Great Recession exports from Asia have tailed off, contrary to what happened after other financial distresses in recent times.

asia-broken-export-model

  • State pension plan benefits on the decline (Joel Kranc, Employee Benefit News) States are increasing employee contributions, cutting benefits and extending the number of years used as the base for calculating benefits. The expectation is that in the future employees will work longer (to an older age) than for older plans ("legacy plans") and get a smaller benefit after making greater personal contributions. Retirement planning for new state employees will be a much different process that in the years before the Great Recession.
  • A Eulogy for Twitter (Adrienne LaFrance and Robinson Meyer, The Atlantic) Revenue is still rising, number of users is still growing but activity per user is tailing off. Twitter says the experience is being streamlined; the authors say it represents the decline of website.
  • The meteoric, costly and unprecedented rise of incarceration in America (Emily Badger, The Washington Post) This is a very comprehensive review of the American prison society that has emerged over the past 40 years. The costs are staggering but the numbers are even more so. The 30-year surge is significantly driven by a six-fold increase in incarcerations for drug offenses but there have been increases in other categories of crime, ranging from 70% (burglary) to more than 300% (sexual assault). Currently there are more than 7 million individuals in jail, prison and on probation. As shown in the following graph everything took off in the 1970s.

prison-population-rate

  • HECM Reverse Mortgages: Now or Last Resort? (Shaun Pfeiffer, C. Angus Schaal and John Salter, Journal of Financial Planning) A wonkish academic study finds that using reverse mortgages in retirement have, in many scenarios, a more satisfactory outcome if the mortgage is established in early retirement as part of a long-term plan rather than held as an option in reserve should it be needed later.
  • GMO: The Stock Market Looks Irrationally Exuberant (Sam Ro, Business Insider) Investment management firm GMO has a proprietary stock market sentiment indicator and it has just tripped the "irrational exuberance" signal that was previously hit in 1970, 1997, 2000 and 2007.

irrational-exuberance


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