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What We Read Today 23 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.

  • ZoltanFX Awaits Yen Breakout (FX Empire) Zoltan is playing the yen for a breakout from its narrow trading range. He is ready for a move in either direction.

yen-zoltan-faEmp-2014-jun-22


Today there are 10 articles discussed 'behind the wall'.

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  • Charitable giving hits new record (Robert Frank, CNBC) Hat tip to Marvin Clark. Total giving by individuals, companies and foundations reached $335.17 billion last year (2013). The bulk of this was from wealthy individuals, according to the annual report from Giving USA Foundation and the Indiana University Lilly Family School. The previous record of $320 billion was set in 2012. Both years were above the pre-recession high of $311 billion in 2007. Go to the article to view an interactive version of the graphic.

charity-2014

  • America As A Lousy Exporter (Paul Krugman, The New York Times) Prof. Krugman finds the strong productivity ranking and relatively low labor wages but a high trade deficit a puzzling situation As part of his discussion Krugman says:
"...the trade balance is a macroeconomic phenomenon, determined by the excess of savings over investment."
This story is perfectly plausible. But it's not the story told by the macroeconomic/mathematical relationship between excess saving and the trade balance referred to by Krugman and so many others. The reason? That relationship is a mathematical identity. It simply says that, mathematically speaking, the trade deficit will equal the savings shortfall. It does not say that the savings shortfall "determines" (i.e., causes) the deficit, or that the trade deficit causes the shortfall. It says nothing about causality at all.
  • Rare Earth Elements: The Global Supply Chain (Marc Humphries, Congressional Research Service) Hat tip to Rob Carter. China has a virtual monopoly on rare-earth elements extraction but half of the known resources are widely distributed throughout the rest of the world. With demand slightly outstripping production and known reserves at only 10x annual production, it is clear that additional sources of rare earth elements need to be brought on line. (See Table 2 in article for 2011 data.)

rare-earth-demand-2010-2015-congress-research-service-2013-dec-16

  • Held Captive by Flawed Credit Reports (Gretchen Morgenson, The New York Times) Faulty credit report records are screwing consumers. This is a long-standing problem and filing complaints and law suits do not seem to be improving the situation. The fines and settlements are just a cost of doing business.
  • China banks seek profit boost through their bad debts (Lianting Tu and Pete Sweeney, Reuters) As 'visions of sugarplums dance in their heads', Chinese bankers want to retain their massive array of non-performing loans instead of selling then at deep discounts to distressed debt investors. These investors have been recording large profits as they buy the bad debt and then settle with borrowers for more than they paid. The banks figure they should be making these profits (actually taking smaller losses). The problem is of course that would restrict lending because of capital requirements and China needs banks to remain in the lending business much more than in the bad debt collection trade.
  • S&P500 the bubble that keeps on giving (Houses and Holes, Macro Business) From Australia on observation about the (irrational) market. Of course this doesn't look this bad if (1) adjusted for inflation and/or (2) plotted on a percentage increase chart and/or (3) plotted on a logarithmic chart.

sp500-since-1950

  • China’s Real-Estate Wrongs (Yao Tang, Project Syndicate) A Peking University professor says the government has made an error of having the "wrong strategy" trying to achieve the "right object". He says that too much attempted control has created market distortions.
  • Supreme Court limits the scope of software patents (Laura Lorenzetti, Fortune) A decision from the SCOTUS (Supreme Court of the United States) last week limits the scope of what can be patented for software applications. The case (Alice Corp. v. CLS Bank International) resulted in patent coverage being denied for a general process description of how software could be used to manage settlement of transactions between three parties. The settlement process has been known for a long time and the "invention" was a description of how to run it in a computer. No system was ever built by the "inventor" so there was no demonstration of process improvement. The decision does not define what is patentable, only the general description of one situation that cannot be patented. This provides some limits on what "patent trolls" are allowed to do. Patent trolls are entities who file general patents without a self interest in developing any specific products and then demand royalties from parties who do develop specific products within the general area.
  • Rental home shortage is America's next housing crisis (Walter Kurtz, Sober Look) Construction has been at the lowest levels (as a share of GDP) since WW II, search for rental properties is the highest of this century, vacancy are falling significantly and rents are rising compared to median income. Kurtz says this will be the housing crisis we didn't see coming because:
Economists, politicians, and the media continue to focus on slow home sales as an indication of weak housing markets. But they are simply "fighting the last war". The looming crisis is not about how often homes change hands, but about the shortage of rentals and the rising cost of shelter that the new generations of Americans will increasingly face.

residential-construct-spending-2014-may


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