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What We Read Today 19 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.

  • In Search Of Russia’s Lost Fracking Boom (Wolf Richter, Testosterone Pit) Russia is having little success with opening up production from shale and off-shore deposits because early production in such areas is risky and best started by wildcatters. In Russia only the large government owned petroleum giants are authorized to do exploratory drilling; they are, to sat the least, not wildcatters.
  • Arizona Cities Could Face Cutbacks in Water From Colorado River, Officials Say (Michael Wines, The New York Times) The serious drought in the southwest may reduce flow in the Colorado River to the point that Phoenix and other Arizona cities may be seriously cut back on water. Phoenix gets about half of it's water from Lake Mead (Hoover Dam on the Colorado River) while Tucson gets almost 100% from there. Las Vegas could also be cut off in coming years. Arizona farmers could start to receive reduced allotments as early as this year.

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

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  • Euro Area Business Cycle Dating Committee: Euro Area Mired in Recession Pause (Center for Economic Policy Research) The CEPR is the official "dater" for Eurozone recessions met in London 11 June 2014 and made an official determination that the recession beginning in the third quarter of 2011 has still not ended. They call the experience of the past year "a prolonged pause in the recession". That pronouncement does not assure that the recession end could not be retroactively determined to have occurred at any time in the past at some future time. But if that does not happen then the current recession is approaching 31 months duration and counting. See also next article.

eurozone-recessions

  • Selling Your European Stocks Before Everyone Sees This Chart? (Wolf Richter, Testosterone Pit) The EPS (earnings per share) for European stocks peaked just four months before the CEPR (see previous article) called the start of the current recession for the Eurozone. The decline in EPS has not yet defined a bottom (but there could be one developing). Corporate earnings may well be one of the tracking parameters for the CEPR (see page 61 here), but if it isn't it certainly seems to confirm their judgement.

european-stoxx-600-vs-eps-testos-2014-jun-07

  • Recovery hasn’t paid off yet for American workers (Jeffrey Bartash, The Wall Street Journal) Here is a major contribution to the slowness of the recovery. Typically wages rise during a recovery but in this case they are almost where they were when the recession officially ended.

wage-growth

  • Assessing Fukushima Damage Without Eyes on the Inside (Matthew L. Wald, The New York Times) How do you assess damage in materials designed to shield common radiation scans (like x-rays). Now a new technology (called muon tomography) is being introduced. It uses muons, elementary particles that can transit dense materials such as thick concrete, to measure materials such as plutonium and uranium which are of primary interest in surveying the status of the Fukushima reactors.
  • Recent declines in labor force participation are not driven by discouraged workers (Walter Kurtz, Sober Look) Since 2008 the decline in the labor force has been driven by increasing disability and increasing retirement. All "other" categories are divided into three classifications, shown in the first graph below. In that graph is plotted the contribution to the participation rate and it can be seen since 2011 the discouraged job seeker has not increased its contribution to the participation rate shrinkage. In the second graph it is seen that the biggest driver of the shrinking participation rate is retirement.

not-in-labor-force-sober-2014-jun-18

not-in-labor-force-2-sober-2014-jun-18

  • Central banks shift into shares as low rates hit revenues (Ralph Atkins, Financial Times) Central banks around the world have shifted into market investments, perhaps as much as $29 trillion. Market investments include such things as fixed income securities, stocks and gold. The FT quotes from the report that equity investments increased "by at least $1 tn in recent years". See graph below from Global stock rally: World market cap reached record high in November, and is back above pre-recession, pre-crisis level (Mark J. Perry, Carpe Diem, American Enterprise Institute). As of May 2014 the total market cap of World Federation of Exchanges had increased to $64.5 trillion. Presumably the total market cap would be at least $1 trillion less without central bank money. But indirect affects could well account for much more. How much of the $2.6 trillion in excess reserves created by the increase of the Fed balance sheet in the U.S. have enabled increased stock investments by banks and their clients? How much of the $2.4 trillion balance sheet of the Bank of Japan supports equity investments? How much of the $2.3 trillion for the ECB (European Central Bank)?

world-stock-market-cap

  • A Smart Way to Skip College in Pursuit of a Job (Eduardo Porter, The New York Times) This week, AT&T and Udacity, the online education company founded by the Stanford professor and former Google engineering whiz Sebastian Thrun, announced something meant to be very small: the "NanoDegree." With 6-12 months of study online, at a total cost of $1,200 to $2,400, students can learn basic programming skills for entry level positions at AT&T as a data analyst or a iOS applications designer. Econintersect note: This is a reverse of a situation common 20 or more years ago when corporations hired trainees and paid them an entry level wage while the company provided the needed training.
  • Chinese fund CIC under fire over overseas losses (Jamil Anderlini, Financial Times) China Investment Corporation, the world's fourth-largest sovereign wealth fund, has been accused by the country's top auditor of mismanagement, dereliction of duty and poor due diligence just seven years after its inception.
  • Countdown to Another Market Peak Has Begun (Chris Puplava, Financial Sense) Hat tip to John O'Donnell. Recent inflation data has Puplava looking for a stock market reaction based on historical correlations. See graphs below. One word of caution, however: The negative reaction of stocks to increased inflation is based on the Fed raising interest rates in such situations. That may not happen as quickly (or as strongly) in the current situation due to economic and financial system fragility.

inflation-puplava-2014-jun-18

stocks-vs-inflation-puplava-2014-jun-18

  • Tax Bads, Not Goods (L. Randall Wray, New Economic Perspectives) "Once we understand what taxes are "for", we can start to think about what kinds of taxes make sense."
Low trust in government can also become a self-fulfilling prophecy. In a low-trust environment, politicians who want to expand the government's role face a conundrum. Even when the public is supportive of their policy goals, Americans might well doubt the government's capacity to deliver on those goals. And that in turn might encourage the architects of public policy to hide the government's role, leading to public policies that are at once highly complex and obscured from view. That's not a great recipe for rebuilding trust in government. But it's an apt description of Obamacare.

yellen-calms-markets-sober-2014-jun-18


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