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What We Read Today 02 August 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 (and sometimes longer ones) 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.

  • Argentina blames US mediator for debt default (BBC News) Argentina has blamed the US for its debt default, calling the mediator in failed talks "incompetent". Argentine Cabinet Chief Jorge Capitanich said his country was considering opening proceedings at international tribunals in The Hague after it was declared to be in technical default. See also former IMF economist Elliott Morss in GEI Opinion, who thinks that there is no need for a default; he offers his prescription to settle the dispute.

  • Courts Disagree About Subsidies on ObamaCare's Federal Exchange (Michael Tennant, New American) Repeated from WWRT 'behind the wall' 27 July. Two federal courts have ruled on opposite sides of the same question: Are subsidies legal for Obamacare insurance policies obtained through the federal exchange, The D.C. Circuit Court of Appeals ruled 2 to 1 that "the ACA [Affordable Care Act] unambiguously restricts the ... subsidy to insurance purchased on Exchanges 'established by the State.'" The same day, the Fourth Circuit Court of Appeals (Richmond) panel unanimously reached the opposite conclusion that the federal exchange subsidies were permitted under the law.
  • WHO: Ebola moving faster than control efforts (Boubacar Diallo, MSN News) The head of the World Health Organization (WHO) has warned the heads of four countries that the Ebola virus outbreak in their countries is moving faster than efforts to control the disease. More than 700 people have died in Guinea, Sierra Leone and Liberia in the past six months and now the first case of infection has shown up in Nigeria. WHO Director-General Margaret Chan said:
"If the situation continues to deteriorate, the consequences can be catastrophic in terms of lost lives but also severe socio-economic disruption and a high risk of spread to other countries."

See also next article.


  • Why you’re not going to get Ebola in the U.S. (Lenny Bernstein, The Washington Post) The outcry against the transport of two Americans infected with the Ebola virus back home from Africa has been quite vigorous. But it is misguided. Like HIV transmission of Ebola from one being to another requires specific types of contact. From The Washington Post article:
Transmission of Ebola requires direct contact with an infected person's blood, vomit or feces during the period that he or she is contagious, something that is extremely unlikely for anyone but health-care workers. The virus is not spread by coughing or sneezing. Nor do Americans bury their own dead family members or friends, as some residents of Sierra Leone, Liberia and Guinea must do with Ebola victims.

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

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  • Expect higher treasury yields in second half (Walter Kurtz, Sober Look) Kurtz says the combination of the taper and lower foreign demand for Treasury securities will drive long-term treasury rates higher in the second half of the year, supported by stronger U.S. economic growth. He says to look for 50-75 basis points higher for the 10-year to 3% - 3.5% by the end of 2014. Econintersect: Kurtz doesn't discuss but he must believe that rates lag demand because for the first half of 2014 the 10-year rate has declined from 3% to 2.5% while net demand (issuance net of Fed purchases) has doubled.


  • Most hedge funds fail (Dan McCrum, FT Alphaville) Reading this, one gets the impression that all too many hedge funds are con jobs. Finding the legitimate investments among the jungle of firms offering "sophisticated" "advantages" is a real challenge. The argument in this article is that the wise investors follow simple and low fee strategies and often come out ahead of the wizards. See also next article.
  • Mortgage Rates Remain Largely Unchanged (Press release, Freddie Mac) The headline refers to the weekly change. Over the past yaer rates are down, although still higher than at the low point nearly two years ago. See also previous article.


  • When Roth IRA Conversions Aren't Tax Friendly (Donald Jay Korn, Financial Planning) Obamacare has thrown a new complication into Roth conversions for some. When income has dropped it used to be a good time to consider conversion in a lower tax bracket. If the individual has a subsidy for health insurance under ACA (Affordable care Act), that could be lost if taxable income was added because of a Roth conversion.


Cov-lite lending is seen as riskier because it removes the early warning signs lenders would otherwise receive through traditional covenants. Against this, it has been countered that cov-lite loans simply reflect changes in bargaining power between borrowers and lenders, following from the increased sophistication in the loans market where risk is quickly dispersed through syndication or credit derivatives.

This is a sophisticated way of saying the money is easily lent because the original lenders don't have to worry about getting repaid.


Now, in case you think that banks (in this case European, but yet to be proven not elsewhere as well) learned their lesson about lending money that the lenders know will be lost by someone else if things go bad, think again. The cov-lite total for 2014 could be headed to triple the amount that was originated on 2007. WOW!!! Let the good junk times roll!


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