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.
Carney tells UK to prepare for rate rises (Chris Giles and George Parker, Financial Times) Bank of England governor Mark Carney announced in a speech that interest rate hikes "could happen sooner than markets currently expect". The FT says that markets currently expect the first increase in the spring of 2015 and this could bring the expectation in to late this year. BoE guidance has been that rate increases will be gradual and to levels lower than the 5% "standard" of earlier times. Read the speech here.
Japan's Abe Is the World's Best Leader (Noah Smith, Bloomberg) Smith says he is the best because (1) he listened to Milton Friedman; (2) he is attacking sexism in the workplace; (3) he is reducing Japan's high corporate tax rate; (4) he has upgraded the investment profile for Japan's government-run pension plan; (5) he has launched a number of deregulation efforts; (6) he is curbing the long-entrenched bureaucracy; (7) he is proposing an immigration plan to blunt Japan's terrible demographic outlook and shrinking population; and (8) he is being more assertive in foreign affairs.
David Brat Thinks Economics Is a Sham (Jordan Weissmann, Slate) David Brat who unseated House Majority Leader Eric Cantor in last night's giant election shocker, thinks mainstream economics suffers from a mass delusion of scientific impartiality. This seems a little strange to Weissmann but, in Econintersect's opinion, Brat is spot on. He is quoted as saying that economics is "actually grounded in unexamined moral and philosophical assumptions-especially utilitarianism, which generally holds that our goal should be to do the greatest amount of good for the greatest amount of people." Well, Econintersect would say that the unfounded assumptions are much deeper, extending even to assumptions about facts.
Today there are 13 articles discussed 'behind the wall'.
Six of the articles discussed today are related to investing topics.
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How Demographic Changes Could Boost Americans’ Wages (Nick Timiraos, The Wall Street Journal) Forget the workforce participation rate. If the numbers in this article prove out it is likely to stop declining and even start rising again, driven by demographics. As the baby bubble generation moves out of the U.S. labor pool (residents between ages 20 and 64) will be growing ever slower, reaching a level about 25% of historical norms. Chris Porter (John Burns Real Estate Consulting) is quoted as saying this will mean employers are "finally going to have to compete for talent, and that will ultimately result in household incomes that are finally going to rise."
The coming digital anarchy (Matthew Sparks, The Telegraph) Hat tip to John O'Donnell. It may be a good time to think about becoming a hermit.
Lost Generation Casts Shadow Over Housing Market (John Carney and Justin Lahart, The Wall Street Journal) Lower incomes, high levels of student debt and poorer employment prospects are burdens on the current rising adult cohort which will keep them from the traditional level of entry into the home buying market. And with fewer first-time home buyers the move-up buyer is also impaired. Tighter underwriting standards are the final nail in the residential real estate anchor holding the housing market below prior levels. See also Keith Jurow's latest on residential real estate market problems at GEI Analysis.
Bank of America Mortgage Settlement Is Said to Be Deadlocked (Jessica Silver-Greenberg, Ben Protess ad Michael Corkery, DealBook, The New York Times) The DoJ (U.S. Department of Justice) has sought a settlement of $17 billion for BoA (Bank of America) sales of MBS (mortgage backed securities) that later"imploded". BoA has said its top offer is $12 billion. One of the sticking points is BoA insistence that they have limited liability for MBS sold by Merrill Lynch which are part of the complaint. BoA represents that it was pressured by the Treasury Department to complete the acquisition in late 2008. But the NYT says that "the bank was the one to pursue the purchase". The ultimate outcome of this stalemate would be a civil trial on the complaint and, if found in favor of the DoJ, the amount of damages. (Econintersect would like to see a criminal case but precedent indicates that won't happen.) What do others think? Ruchira Roy (Wall St. Cheat Sheet) wrote an article: Here’s Why Bank of America Is Dead in the Water.
Genius versus bricks-and-mortar in the head (Steve Keen, Technology Spectator) Steve Keen contributes to GEI. An Australian technology genius has a combo laptop/tablet/phone with Android, Linus/PABX/Bluetooth systems all on-board. According to Keen, it sells for about 1/3 what a similar Microsoft product costs (and Microsoft has less function). The Vixtel Unity will be in production next month. The not-quite-competitive Microsoft Surface Pro will be available in August.
Shanghai Composite Headed for a 30% Selloff? (Chris Kimble, Advisor Perspectives dshort.com) Chris Kimble has contributed to GEI. If support breaks Kimble suggests the chart patterns suggest another 30% decline for the Shanghai Composite.
Click on chart for larger and wider view at AdvisorPerspectives dshort.com.
Easy Money (Zachary Karabell, Slate) Even without the Fed, we are awash in cash. The largest central banks around the globe are flooding the world with money and it is likely to continue for many years, according to Karabell.
The futures are looking robust for the first time in a long while. Yesterday's rally generated yet another bullish impulse leg on the daily chart by surpassing an external peak at 19.525 recorded on May 23. A rally that is able to exceed at least two prior peaks with each new thrust, as Silver has been doing, is demonstrating that it is raring to go. If this is indeed so, we should see a surge today that surpasses the distinctive external peak at 19.825 (see inset) from May 22. Night owls looking to climb aboard should look to do so on a resumption of the rally following a shallow pullback of perhaps 15 cents from Thursday's 19.565 high.
Click on chart to view larger image at Rick's Picks.
Why Is Calling a Market Top So Hard? (Barry Ritholtz, Bloomberg) Tops are hard to call because they "come about through the combination of greed, complacency and indifference". None of these create parameters with sharp peaks; they "evolve".
Heads Up Now (No Link) (William Kurtz, Daily E-mail Advisory 12 June 2014, CandleWave) William Kurtz contributes to GEI. Kurtz sees a rebound from oversold levels, followed by a bigger decline, possibly starting next week.
Yield Spreads & Market Reversions (Lane Roberts, StreetTalk Live) Lance Roberts contributes to GEI weekly. Low bond yield spreads (the difference between AAA and junk yields) is not an indicator of imminent market corrections or bigger declines, but they do indicate a mature financial cycle. And mature financial cycles end with markets declines. The time from a yield spread low point to the start of a market decline is variable (extremes are almost 3 years before in 2005, and almost 2 years after the market decline started in 1974). Note: The 1974 yield spread bottom in 1974 does not have a vertical dashed line marked in the chart below. Roberts says that it is important to understand that "it is not the DECLINE in interest rates and yield spread that is important, but it is the REVERSAL that must be watched for".
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