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What We Read Today 17 July 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.

  • Gold Set for Continued Gains (Cina Coren, Daily Forex) Here is one report on gold that is optimistic after the pullback of the last few days, although the report ends by quoting a sell recommendation from UBS. We guess that is called hedging.


  • To Restart Vintage NASA Probe, Private Team Turns to the 'Borg' (Elizabeth Howell, An update on the report about efforts to repurpose an abandoned NASA satellite for a citizen science project. The team's prime mission goal now is to maneuver the spacecraft into an orbit that will put it relatively close to Earth. Fuel problems appear to have possible solutions and there is still hope (reported as dimming last week) that the on-board rockets will be able to fire up and reposition the spacecraft.
  • Pack Like a Nerd (Reed Kennedy, Hat tip to Flowing Data. Here is the ultimate guide for how much underwear to pack for trips of up to one month. You can optimize to your own preferred ratio of laundry vs. luggage.

Click on graphic for large image.

There are 10 articles discussed today 'behind the wall'.

The first four articles discuss views of a market top.

Please support all that we do at Global Economic Intersection with a subscription to our premium content 'behind the wall'. There are between 75 and 100 articles reviewed most weeks. That is in addition to the 140-160 articles of free content we provide.

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  • DRUCKENMILLER: IBM Is The 'Poster Child' For What's Wrong With Corporate Behavior Today (Myles Udland, Business Insider) Stanley Druckenmiller says IBM is no longer a computer and software engineering company but a financial engineering company. They have the same sales as six years ago and have increased debt three fold to buy back stock and boost earnings per share by financial manipulation. He then goes on to say that IBM is not alone in this endeavor, many other corporations are doing the same thing. The article includes a graph from Ed Yardini which shows how 2014 is paralleling 2007. Note that the same behavior did not occur at the 2000 top - there was another mania going on then.


  • S&P 500 PE Ratio ( From 1900 into the mid-1990s, the PE ratio tended to peak in the low to mid-20s (red line) and trough somewhere around seven (green line). The price investors were willing to pay for a dollar of earnings increased during the dot-com boom (late 1990s), surged even higher during the dot-com bust (early 2000s), and spiked to extraordinary levels during the financial crisis (late 2000s). For nearly three years now, the PE ratio has been generally trending higher and is currently very near the 20 threshold. Does just below 20 mean that we have a way to go to get to a market top? Not necessarily. The crash of 1929 and the huge 1973-74 bear market both started from PE ratios just below 20.


  • Investors Forgot Everything That Happened Just a Few Years Ago? (Michael Lombardi, Advisor Perspectives Michael Lombardi has contributed to GEI. Lombardi sees the collapse of the Baltic Dry Index as convincing evidence of a global slowdown. See chart below. He says that complacency is also a very worrisome factor (VIX volatility index chart can be seen by following the link.)



  • China Plays a Big Role as U.S. Treasury Yields Fall (Min Zeng, The Wall Street Journal) Why have U.S. Treasuries come down in interest from 3.0% to 2.5% this year even as the Fed is tapering down its purchases of debt? The WSJ reports that China has been buying U.S. Treasuries at the fastest rate in history in 2014. This article says that it is part of China's strategy to weaken the yuan (or strengthen the dollar) to help support a continuation of its high level of exports to the U.S. If the article by Van Hoisington and Lacy Hunt in GEI Investing yesterday is correct (Treasury Bonds are Undervalued) China may also make a pretty penny on the bonds as an investment.


  • Non-residential Construction Starts Surged in June (Reed Construction Data) The dollar value of U.S. construction starts in June, excluding residential activity, surged 34% versus May. Compared to June 2013 the total was up 14.4%. This was the largest value for June construction starts since 2008. The total value of construction starts in 2014 through June was $138.0 billion, up 2.4% from the first half of 2013.


  • Microsoft Layoffs: Insane M&A Frenzy Leads To Next Jobs Crisis (Wolf Richter, Wolf Street) M&A (mergers and acquisitions) activity is at the highest level since 2007. Richter says that will surely lead to job losses as the "efficiencies" and "synergies" of the mergers play out over the coming months and years.
Acquisitions, layoffs, and cost-cutting are the simplest things to do for a CEO, as opposed to inventing things and boosting sales organically, which is hard. And analysts eat them up. They call the dizzying expenses "non-cash charges" to be ignored, and they too decorate their pronouncements with "efficiencies" and "synergies." Hence, a wave of acquisitions is invariably followed by cost-cutting, destruction of productive capacity, and layoffs.
  • Electric Generation Capacity Additions (The Daily Slot, email, no url) With all the talk about renewables notwithstanding, The EIA projects most ofthe action over the next 26 years will be with natural gas.


  • Who Wants a Depression? (Paul Krugman, The New York Times) Prof. K argues that everything is political so we better get used to it. Well Econintersect thinks that policy is political but economics should not be. Economics is facts. Policy is what you do with those facts. Would Prof. K disagree with that?


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