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What We Read Today 05 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.

This is an excellent bookend to Putin's recent speech on the subject of why it is important to remember World War I.
  • NASA says puzzling new space drive can generate thrust without propellant (Dario Borghino, Gizmag) A device called the "Cannae Drive" can generate small amounts of thrust without the use of propellant (rocket fuel). The validity of the device has been confirmed by NASA. On the surface this seems to violate Newton's Third Law of Motion: For every action there is an equal and opposite reaction. The Cannae Drive operates without consuming fuel which would "fly" in one direction propelling the vehicle in the opposite. There is no fuel in the conventional sense; the device operates by using microwave energy which permeates space. The redirection of the microwaves by a cavity creates a reaction resulting in the cavity being moved (thrust). If this sounds unreal to those who are firmly grounded in a Newtonian reference (where mass is needed to create a force, as in F = ma), all you need to resolve your dilemma is to think relativistically. That's not complicated if you consider Einstein's famous equation E=mc2, which specifies the quantum equivalency of mass and energy.
  • Corruption Responsible for 80% of Your Cell Phone (Bill Matt Stoller, Republic Report) Do you know why the U.S. is among the worst developed countries in the world for cell service, wideband and internet services, as well as one of the most expensive? And some developing countries beat out the U.S. also. It is because there is no competition to force improvement in networks and services and to force competitive pricing. These technologies are being used as cash cows by entrenched corporations that retain their power through political corruption. The U.S. ranks 31st in the world in internet download speed and 42nd for upload speed. See Why is American internet so slow? (John Aziz, This Week). Average connection speeds fare better, 9th globally for average connection speed. See Is the U.S. Losing the Broadband Race? As It Turns Out, We Look a Lot Like Danica Patrick (Hal Singer, Forbes) Singer says that more regulation has produced cheaper internet services in Europe but has "destroy[ed] investment incentives as a nasty byproduct". Stoller provides a graphic which should cause you to wonder what Singer is talking about. The U.S. system encourages investment? Quite the opposite:

wireless-capex-stoller-repub-report-2012


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  • The Global Reserve Currency: A “Changing of the Guard”? (Barry Norman, FX Empire) Authored with support of Scott Carter, CEO of Lear Capital (no relationship to Lear Financial Services, former firm of John Lounsbury). Norman and Carter think there now appears to be a clear shuffling of the geopolitical order and an emerging multipolar world marked by a new cooperation among nations, a new basket of viable currencies, multiple gold superpowers, and a well-timed and coordinated changing of the guard. Their arguments includes:
  • The average longevity for previous global reserve currencies has averaged 94 years (first graph below).
  • Less foreign exchange reserves are held as U.S. dollars today (61%) compared to 1999 (71%).
  • The amount of trade financed in U.S. dollars is slipping (see GEI graph below, using data from the article).

reserve-currency-history-fx-emp-2014-aug-01

global-trade-finaance-currencies

  • Citigroup Offers Five Times Leverage to Bank Depositors to Trade in Foreign Currencies (Pam Martens, Wall Street on Parade) The 1999 Gramm-Leach-Bliley act restored banking practices which created the financial collapse leading to the Great Depression. If you ever doubted that, read this article. Citigroup, the beneficiary of more than $2.435 trillion in bail-out assistance is now advertising their casino gaming operations (aka leveraged retail forex accounts). This is being done by a firm that has FDIC insurance and is too big to fail (TBTF) with all the government back-up support that implies going forward? Yes, that Citigroup!!!

sp500-1-year-trend-2014-aug-04

  • China repeats promise to increase investment, speed up reforms (Koh Gui Qing and Aileen Wang, Reuters) Monday China's economic planning agency said that it will "increase investment" in the property sector and other areas while also advancing "wide-ranging economic reforms". Well, obviously they are not talking about rebalancing which would require reducing investment and increasing domestic consumption. They talk about "changing the fiscal and pricing systems", which sounds an awful lot like double-speak to us.
  • Investors Will Take Heavy Losses In The Banco Espirito Santo Bail-In (Mykes Udland, Business Insider) Stockholders in BES (Banco Esprito Santo) have lost more than 90% of their equity in less than four months but the conservative investor would have played it safe and bought bonds, right? Imagine how the person feels who bought the 2023 subordinated bond at a 10% premium (110) less than two months ago who found it selling at 30 yesterday (04 August), for a 73% loss. That's almost 18% a month compounded loss on the stock - and more than 30% a month compounded for two months on the bonds. There is a distinct possibility that both the stock and the bond will go to zero (see second article below).

banco-esprito-santo-collapse

  • Welcome to the mall of 2039: It's nothing like today (Krystina Gustafson, CNBC) This is a very interesting review of what "The Mall" may be in 25 years, a magical blend of the physical and the digital. The article has stylish illustrations and numerous videos but would still be excellent if only the text were present.
  • The BES way out? (Lex Oliver and Joseph Cotterill, Financial Times, YouTube) The Banco Espírito Santo rescue includes a split into good and bad banks. Lex's Oliver Ralph and Joseph Cotterill discuss whether this is a true bail-in and how much, if anything, shareholders and junior bondholders in the bad bank might recover. They conclude that the question of whether any equity or junior debenture recovery will eventually occur is not answerable because the process is "make it up as you go along".


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