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What We Read Today 19 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.

  • India’s Shinzo Abe (Brahma Chellaney, Project Syndicate) The author, an Indian academic and think tank fellow, sees a strong alliance potentially between Japan and India, as well as improved relations with the U.S. after a rocky start.
  • Australia Announces Plan To Slash Deficit (Dr. Mike Campbell, FX Empire) If you want a two minute summation of the proposed Australian austerity budget this is a good candidate. The discussion of the difference between private debt and public debt may be a little too "sparse" but you shouldn't expect more in 120 seconds. See also next article.
  • Abbott’s Popularity Slumps in Australian Budget Backlash (Michael Heath and Jason Scott, Bloomberg) A new poll shows 74% of Australians think they will be worse off under the new proposed austerity budget while only 11% think things will be better. In another poll Prime Minister Tony Abbott dropped to a popularity of 34%, ten points behind opposition leader Bill Shorten of the Labor Party.
  • Cecily McMillan Found Guilty (The New School Free Press) This article gives some background on the case of an Occupy participant who has been convicted of felony assault resulting from charges that her elbow impacted a police officer when she whirled after he grabbed her breast from behind. She has written a statement Sunday 18 May at Justice for Cecily. The graphic below promoting the web site was forwarded to Econintersect by Roger Erickson. McMillan has a sentencing hearing at 9:30am today 19 May in New York City. The maximum term of sentence is seven years.


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

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  • Broken Trend Lines (Walter G. Murphy, Jr., Market Pulse) The breakdown of the euro and the 10-year Treasury yield may be warning signals for the S&P 500 which is highly correlated.


  • Digging deep in search of water on the moon (Mahesh Anand, James Mortimer, Jessica Barnes and Romain Tartese, The Conversation) Don't get too excited - so far it is only found in parts-per-million (ppm) traces. But there is hope that there may be greater quantities at depths far below the surface. That hope is based on two observations: (1) Recently surface ice has been detected on the surface and (2) cooled magma samples from the moon have shown water concentrations up to 46 ppm, within an order of magnitude of the water found in earth basalts (260 ppm).
  • Poorer Health of Surgery Patients on Medicaid May Alter Law’s Bottom Line (Robert Pear, The New York Times) Medicaid patients arrive at hospitals for surgery in worse health and suffer more complications than those on private insurance. The Medicaid patients had double the rate of smoking. They also has higher incidence of serious chronic conditions such as diabetes, lung disease and blood vessel blockages.
  • AT&T to Buy DirecTV for $48.5 Billion in Move to Expand Clout (Michael J. de la Merced and David Gelles, The New York Times) With this new proposed deal added to the proposed Comcast - Time Warner merger the control of information distribution and delivery is condensing down to a very few strong hands.


  • The Resource Revolution (Stefan Heck and Matt Rogers, Project Syndicate) The authors say the two industrial revolutions will be replaced by a resource revolution in the 21st century. The industrial revolutions were marked by a systematic decline in resource costs which the authors say will come to an end because the resources of the planet are not limitless. The new revolution will be one in which the efficiency of resource use will be the factor which determines the economic winners. The driving economic forces will come from doing more with fewer resources and labor productivity improvement will be less important for building wealth.
  • "Generation rent" raising demand for multifamily housing (Walter Kurtz, Sober Look) Housing data continues to be soft, and Kurtz continues to support that theme. He points out that multi-family construction is supporting the new homes construction data. The most recent building permits data showed a 19.5% increase in the most recent report (see GEI Analysis) and a little followed data item shows an increase in outstanding mortgage debt for multifamily housing is up more that 1/3 since 2007.

While analysts lament the low level of the housing market, a graph shown by Kurtz and annotated by Econintersect shows that housing starts normalized to population is actually close to the center of a declining 40-year channel. In other words, housing starts are close to "normal" today by this metric.


  • China’s Yuan: Not Down for Long (Jens Erik Gould, Credit Suisse, The Financialist) Gould argues that the decline of the yuan against the dollar so far in 2014 will soon reverse. He quotes a Credit Suisse China economist, Dong Tao, that the decline was engineered by China to "break the one-way focus on appreciation" by currency speculators. Tao expects the yuan to rise to 6.07 to the dollar in the next 12 months. It was at 6.24 when this article was posted on 05 May and is still at that level Monday morning 19 May. However, we are not talking about any big moves here; If Tao is correct on his one-year projection the yuan will be lower in may 2015 than it was at the start of 2014 (6.05).
  • Stronger economy on the horizon, experts say (Zheng Yangpeng, China Daily) The experts quoted are saying things like "economy will pick up in third and fourth quarters", electricity consumption is higher, "housing is reaching some sort of 'equilibrium'", PMI edged up in April and the government has implemented a "soft stimulus".
  • Why the ECB Should Implement QE in Europe (Mickey Levy, Pragmatic Capitalism) Levy points out that the ECB has been tightening since 2Q 2012 as its balance sheet has shrunk by almost 1/3 since that time. This corresponds to when most of the private credit contraction started in the Eurozone which is discussed in detail in the next article. Levy wants to see the ECB balance sheet expand again with QE/LSAP (quantitative easing / large scale asset purchases) using shorter term sovereign debt.


  • Can Europe’s creditless recovery continue? (Houses and Holes, from Elliot Clarke, Westpac, Macro Business) Discussion repeated from 17 May 2014. Why is it expected that the ECB (European Central Bank) will take steps to increase liquidity ("ease") at the June meeting? This article from Westpac shows the astounding shrinkage of credit across the Eurozone in recent years. Econintersect has annotated two of the graphs to focus attention of key data. For the first graph, the three vertical orange lines mark the dates at which MFI (monetary financial institutions) credit growth for different credit classifications most recently turned negative to stay (to date). Reading from right to left:

* Consumer credit, May 2011, most recently down 4% y-o-y

* Non-Financial Corporate, April 2012, most recently down 7% y-o-y

*Financial Institutions, July 2013, most recently down 15% y-o-y


Mortgage credit growth has managed to remain positive, currently up 1% y-o-y.

The credit contraction has shown wide geographic extent; only France has avoided going into contraction with growth hovering around zero for the most recent four months. The status for countries shown in the following graph (emphasized by vertical orange lines) and reading from left to right with the date the current contraction started:

*Spain, May 2011, most recently down 10% y-o-y

*Euro area, July 2012, most recently down 3% y-0-y

*Italy, March 2013, most recently down 3% y-o-y

*June 2013, most recently down 4% y-o-y


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