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What We Read Today 26 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.

  • Aereo Loses In Supreme Court, Deemed Illegal (Jordan Crook, Tech Crunch) Aero had been selling equipment allowing users to receive online broadcast materials and to record them in the company's online DVR for later playback. The SCOTUS ruled 6-3 that an antenna on the internet was not the same as an antenna receiving broadcasts made through the air. See GEI News for more background.

  • Records show how Iraqi extremists withstood U.S. anti-terror efforts (Hannah Allam, McClatchy Washington Bureau) Hat tips to Roger Erickson and Chick Spinney. ISIS (Islamic State of Iraq and Syria) developed from a mostly self-funded corporate-style operation which was in place and growing before the U.S. left Syria in 2011. Before the current leader, Abu Bakr al Baghdadi, took charge in 2010 the organization already had control of some of Iraq's oil wealth through retail operations, smuggling and extortion from industry contractors. All this happened at a time when "U.S. officials believed, incorrectly, that the group had been vanquished". Can we add a new term to the oxymoron lexicon? U.S. intelligence?
  • Roosevelt-era bank faces Tea Party assault (Barney Jopson, Financial Times) The Tea Party wants to shut down the U.S. Export-Import Bank, a government agency set up in 1934 to arrange financing for U.S. exports. The agency has its charter up for renewal. Opponents claim that it is a misuse of taxpayers' money to make loans to foreign corporations who are buying exports from the U.S.. Supporters claim that nations with exports competing with U.S. companies have similar or more extensive government support and to abandon the U.S. agency would put those U.S. company exports at a disadvantage in the global marketplace. Supporters also say out that the ExIm bank doesn't cost the government anything and returns a profit to the treasury. Opponents say the function would be better served by "market forces" while supporters say that the market would not engage in the low margin operations carried out by the government and U.S. exporters would be under-served.

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  • Is a Student Loan Crisis on the Horizon? (Beth Akers and Matthew M. Chingos, Brookings Institute) The where 14% of households in which the average age of adults is between 20 and 40 which had college debt for one or more members in 1989. In 2010 that had risen to to 36%. The size of the debt burdens also rose (see graph below). The study concludes there is no growing student debt problem:
Despite the widely held belief that circumstances for borrowers with student loan debt are growing worse over time, our findings reveal no evidence in support of this narrative. In fact, the average growth in lifetime income among households with student loan debt easily exceeds the average growth in debt, suggesting that, all else equal, households with debt today are in a better financial position than households with debt were two decades ago. Furthermore, the incidence of burdensome monthly payments does not appear to have become more widespread over the last two decades.

This report does not include data after 2010. As of Q1 2012 the average student loan debt outstanding per capita was up 40% from the number in this report to $24,301. Just 21 months later in December 2013 the average was up 70% from the 2010 number to $29,400. It has been estimated that the impact of the high level of student debt on the demand for first-time home purchases could reduce demand by 2 million units. A study by Liberty Street Economics (New York Fed) found that the percentage of 27-30 year olds with college debt also having mortgages fell from nearly 34% in 2008 to 22% in 2013. Another recent report from the New York Fed found a significant drag from student loan debt on the use of other forms of credit. Econintersect suggests that releasing a report now that has data stale by 3 1/2 years in such a rapidly changing environment is less than useful and possibly duplicitous. If the 2011-2013 data were added to the graph below the slope would be rising parabolically over those three years.

student-debt-growth-brookings-2014-jun-24

  • When You Should Be Wary Of A Fund's High Dividend (Lewis Braham, Reuters, Financial Advisor) Before you buy that high dividend mutual fund be sure to determine how much of the "dividend" is actually return of capital. Such funds may return a high payout for several years and then close up shop with a much reduce net asset value. This can be a shock to an investor who wanted to live off dividends and preserve capital. Closed end mutual funds can be especially tricky in this regard since some trade at a premium to current net asset value so the loss at a future date can be even larger than the total of capital returned. Of course all we have talked about so far has not included any loss of market value that can occur in normal market action that would occur even in the absence of any return of capital.
  • China Removes Cap on FX Deposit Rates in Shanghai (Helen Sun and June Luo, Bloomberg) China makes another small step toward liberalizing FX exchange for the renminbi with removal of the cap on FX deposits in Shanghai "small accounts". Beijing appears to be trying to move the exchange rate determination more to the market without any disruptive sudden changes. The current move is also seen directed toward encouraging expansion of loans to small businesses.
  • Gold Testing Resistance (Chart of the Day) Econintersect offers an added annotation and interpretation for the latest Chart of the Day for gold: Gold is testing 3-year channel resistance but is still above 13-year trend support. Note how much the trend support value has increased in just the last three years. See Gold Trend Lines (John Lounsbury, GEI Precious Metals).

gold-chart-of-the-day-2014-jun-25

us-service-sector-activity-sam-ro-2014-jun-25

  • Fixed income risk appetite headed for euphoria (Walter Kurtz, Sober Look) Kurtz has two charts which show the relentless drive of rates to lower levels and investor appetite for longer term fixed investments. The first graphic shows the German bund driving to an all-time low rate (at the same time the U.S. 10-year treasury has made a move to lower rates as well - but far from all-time lows). The second graphic shows the move of investors in U.S. debt to longer duration investments.

german-10-year-sober-2014-jun-25

duration-us-sober-2014-jun-25

  • Here Is The Reason For The Total Collapse In Q1 GDP (Tyler Durden, Zero Hedge) One of the world's top conspiracy theorists says that the plunge of Q1 GDP is due to the shift of $40-50 billion in Obamacare spending from the books of the first quarter to the second quarter where it will produce a booming GDP "recovery".
  • Hottest global May on record (Houses and Holes, Macro Business) Econintersect found temperatures quite delightful in Florida and North Carolina during May. Does NOAA know what they are talking about? For detailed weather and climate analysis at least once (sometimes twice) a week, read GEI News reports by climate economist Sig Silber.

global-temp-mays

soccer-effort-vs-results-gerard-the-conv-2014-jun-25


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