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What We Read Today 03 June 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.

  • Arresting China’s slowdown: the search for sustainable growth (Yukon Huang, Financial Times) Huang suggests that China can do two things that will allow rebalancing to advance while maintaining GDP growth above 7%: (1) Remove restrictions on relocations into the largest cities where labor productivity is highest; and (2) Remove, or significantly reduce restrictions on foreign direct investment, especially in services. This puts him in conflict with Michael Pettis who has maintained that China must see GDP growth decline to around 3% a year to successfully complete rebalancing.
  • Spy vs. Spy (James Surowiecki, The New Yorker) If imitation is the sincerest form of flattery then China is paying us the most sincere complements. America got its start in the industrial age in part by stealing ("illicitly appropriating") "mechanical and scientific innovations from Europe". (From historian Doron Ben-Atar book, "Trade Secrets".)

For astronomers, planets around other stars tend to come in two basic types: rocky worlds and gas giants. Now, scientists have identified a third class of exoplanets, called "gas dwarfs," that fall in between the others.

These gas-dwarf alien planets have thick atmospheres like their larger gas-giant cousins but never quite made it to the size of the planetary behemoths found in the Earth's the outer solar system, researchers said.

Click on illustration for larger image.
gas-dwarf-600px

  • Noah's Ark (Islamic Landmarks) Hat tip to Sig Silber. Petrified remains of The Ark in southeastern Turkey near the borders with Syria and Turkey.

ark-turkey


Today there are 13 articles discussed 'behind the wall'.

The final four articles discuss the disappearing growth in number of U.S. households.

Please support all that we do at Global Economic Intersection with a subscription to our premium content 'behind the wall'.

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  • Beware the Latest Mortgage Trap (Shah Gilani, Wall Street Insights Indictments) Shah Gilani has contributed to GEI. According to Gilani more than $200 billion in interest-only HELOC (home equity line of credit) balances will be converting to fixed-rate conventional mortgages over the 5-year period 2014-2018. (See WSJ graphic below.) If all borrowers remain current on the converted notes the additional payments required will suck many billions per year in increased interest and principal repayments out of the economy. Two examples given by Gilani (quoted from The Wall Street Journal) were: (1) a $70,000 HELOC converting from $292 a month interest only to $560 a month adjustable rate repayment for 15 years; and (2) a $100,000 interest-only HELOC converting $292 a month to $715. See article referred to from WSJ. This serious situation has been documented in the past by Keith Jurow, most recently in GEI Analysis December 2013: Why HELOC Resets Will Undermine Any Housing Recovery.

heloc-resets-wsj-2014-jun-02

"the salaries of law-enforcement officers to arrest and transport homeless individuals - largely for nonviolent offenses such as trespassing, public intoxication or sleeping in parks - as well as the cost of jail stays, emergency-room visits and hospitalization for medical and psychiatric issues."
  • The Sharing Economy is Great – Don’t Listen to the Naysayers (This is Ashok) The world of Uber, Airnb and similar was criticized recently by Dean Baker (who has contributed to GEI) because of issues of tax collection and safety. (See Baker's article in The Guardian.) Baker used harsh language, accusing the "sharing economy" concepts as "facilitators of rip-offs". This author argues that the existence of sharing concerns improve efficiency (reducing idle time of resources) and should increase, not reduce, tax receipts.
  • What Factor Drove The Market In May? (GaveKal Capital, Advisor Perspectives) Great data but limited utility. What correlated to stock performance in May may have a completely different relationship for other time periods as the rear-view mirror graphic shows below. So follow May's correlations in June at your own peril.

correl-gavekal-2014-may

  • The Troika Attack Italy for Refusing to Bleed the Economy (William K. Black, New Economic Perspectives) William K. Black contributes to GEI. Prof. Black berates the troika (European Commission, International Monetary Fund and European Central Bank, aka EC, IMF and ECB) for now embarking on "ultra-aggresive monetary policies while ignoring fiscal policies it know are effective". He endorses the reaction of the Italian government to resist the troika attempts to increase austerity measures. He criticizes the (lack of) logic in what the troika proposes ("a delusional psychotic break posturing as policy"):
Once one considers the logic buried deep in Olli's [Rehn, European Commissioner for Economic and Monetary Affairs and the Euro] folly the troika's infliction of austerity becomes even more incoherent. Rehn is admitting that even the troika knows that austerity is a self-defeating policy to inflict on a nation in recession because it reduces demand when demand is already grossly inadequate. But as I have explained in the context of how the term "recession" is defined, demand is grossly inadequate when a nation is no longer officially in recession but has substantial levels of unemployment. Italy does not have "substantial" levels of unemployment - it has record levels ("all time high") of unemployment. So, if austerity is insane when Italy is officially in recession, it is equally insane under the troika's own (not very close) approximation of logic.
  • Is the emerging markets underperformance about to end? (Walter Kurtz, Sober Look) If there is not a "bubble burst" in China will emerging markets end 3 years of lost ground (while developed markets have made large gains? Some analysts are saying emerging markets are relatively undervalued will soon be outperforming.

spy-vs-eem-2009-2014-sober-2014-jun-02-600px

  • The Great Backlash (Nouriel Roubini, Project Syndicate) Roubini sees a backlash against globalization and technology as people react to the economic hardships of the Great Recession and aftermath. He compares that to the rise of strident nationalism in the 1930s.
  • Obama proposes biggest ever US push for carbon cuts (Barney Jopson and Ed Crooks, Financial Times) President Obama has proposed aggressive carbon emission reductions for U.S. electric power plants, 30% lower than 2005 by 2030. The overall carbon emission load is projected to be lower by more than 16%. This may sound aggressive but things are already moving in that direction. The graph below shows that total carbon emissions have fallen already by 11% from 2005 to 2012. Opponents are issuing predictions that millions of jobs will be lost; the administration says that after all job shifting is done there will be an increase in employment in the energy sector.

greenhouse-gas-emissions-us-1989-2012-ft-2014-jun-02

  • In GPS Battle, Russia Sets Restrictions of Its Own (David M. Herzenhorn, The New York Times) Russia has started to impose restrictions on Global Positioning System (GPS) base stations in their country, as retribution for the refusal of the United States to allow similar base stations on American territory that would improve the accuracy of Russia's navigation system. Econintersect: Since many GPS instruments process both U.S. and Russian systems, this is a tempest without a technical reason.
  • On Inequality Denial (Paul Krugman, The New York Times) Prof. Krugman says that things are not going well for Chris Giles, the Financial Times critic of Thomas Piketty's new book Capitalism... We have tried to get the best information for you to make up your own mind and the latest is Piketty's own detailed "fact Check" which we have published at GEI Analysis. It is the most complete analysis of the debate Piketty has written to date and only GEI has it with fourteen key graphics embedded (others have only the links).
  • Market Peaks are a Process (John Hussman, Advisor Perspectives) John Hussman reminds us that "markets move in cycles". Econintersect remembers someone saying "no one rings a bell at the top" but it is certainly obvious that a precondition for a major top is a period of significantly rising prices. And that "bell" is certainly ringing now.

stock-market-peaks-hussman


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